We Like The Quality Of Nanning Baling Technology's (SZSE:002592) Earnings

The market seemed underwhelmed by the solid earnings posted by Nanning Baling Technology Co., Ltd. (SZSE:002592) recently. Along with the solid headline numbers, we think that investors have some reasons for optimism.

View our latest analysis for Nanning Baling Technology

How Do Unusual Items Influence Profit?

For anyone who wants to understand Nanning Baling Technology's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥23m due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. In the twelve months to December 2023, Nanning Baling Technology had a big unusual items expense. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Nanning Baling Technology.

An Unusual Tax Situation

Just as we noted the unusual items, we must inform you that Nanning Baling Technology received a tax benefit which contributed CN¥7.1m to the bottom line. This is meaningful because companies usually pay tax rather than receive tax benefits. We're sure the company was pleased with its tax benefit. However, our data indicates that tax benefits can temporarily boost statutory profit in the year it is booked, but subsequently profit may fall back. In the likely event the tax benefit is not repeated, we'd expect to see its statutory profit levels drop, at least in the absence of strong growth. While we think it's good that the company has booked a tax benefit, it does mean that there's every chance the statutory profit will come in a lot higher than it would be if the income was adjusted for one-off factors.

Our Take On Nanning Baling Technology's Profit Performance

In the last year Nanning Baling Technology received a tax benefit, which boosted its profit in a way that might not be much more sustainable than turning prime farmland into gas fields. Having said that, it also had a unusual item reducing its profit. Given the contrasting considerations, we don't have a strong view as to whether Nanning Baling Technology's profits are an apt reflection of its underlying potential for profit. While earnings are important, another area to consider is the balance sheet. If you're interested we have a graphic representation of Nanning Baling Technology's balance sheet.

Our examination of Nanning Baling Technology has focussed on certain factors that can make its earnings look better than they are. But there is always more to discover if you are capable of focussing your mind on minutiae. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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.