Chongqing Fenghwa Group's (SHSE:600615) Strong Earnings Are Of Good Quality

Chongqing Fenghwa Group Co., Ltd. (SHSE:600615) just reported healthy earnings but the stock price didn't move much. Investors are probably missing some underlying factors which are encouraging for the future of the company.

View our latest analysis for Chongqing Fenghwa Group

How Do Unusual Items Influence Profit?

For anyone who wants to understand Chongqing Fenghwa Group's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥522k due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. In the twelve months to March 2024, Chongqing Fenghwa Group had a big unusual items expense. As a result, we can surmise that the unusual items made its statutory profit significantly weaker than it would otherwise be.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Chongqing Fenghwa Group.

Our Take On Chongqing Fenghwa Group's Profit Performance

As we discussed above, we think the significant unusual expense will make Chongqing Fenghwa Group's statutory profit lower than it would otherwise have been. Because of this, we think Chongqing Fenghwa Group's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! And it's also positive that the company showed enough improvement to book a profit this year, after losing money last year. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you want to do dive deeper into Chongqing Fenghwa Group, you'd also look into what risks it is currently facing. While conducting our analysis, we found that Chongqing Fenghwa Group has 1 warning sign and it would be unwise to ignore it.

Today we've zoomed in on a single data point to better understand the nature of Chongqing Fenghwa Group's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying to be useful.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.