Jiangxi Hongdu Aviation Industry's (SHSE:600316) Weak Earnings Might Be Worse Than They Appear

After announcing weak earnings, Jiangxi Hongdu Aviation Industry Co., Ltd.'s (SHSE:600316) stock was strong. While shares were up, we believe there are some factors in the earnings report that might cause investors some concerns.

Check out our latest analysis for Jiangxi Hongdu Aviation Industry

How Do Unusual Items Influence Profit?

For anyone who wants to understand Jiangxi Hongdu Aviation Industry's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥26m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. Jiangxi Hongdu Aviation Industry had a rather significant contribution from unusual items relative to its profit to September 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Jiangxi Hongdu Aviation Industry.

An Unusual Tax Situation

Having already discussed the impact of the unusual items, we should also note that Jiangxi Hongdu Aviation Industry received a tax benefit of CN¥1.2m. This is meaningful because companies usually pay tax rather than receive tax benefits. Of course, prima facie it's great to receive a tax benefit. However, the devil in the detail is that these kind of benefits only impact in the year they are booked, and are often one-off in nature. Assuming the tax benefit is not repeated every year, we could see its profitability drop noticeably, all else being equal.

Our Take On Jiangxi Hongdu Aviation Industry's Profit Performance

In the last year Jiangxi Hongdu Aviation Industry 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. And on top of that, it also saw an unusual item boost its profit, suggesting that next year might see a lower profit number, if these events are not repeated. On reflection, the above-mentioned factors give us the strong impression that Jiangxi Hongdu Aviation Industry'sunderlying earnings power is not as good as it might seem, based on the statutory profit numbers. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Case in point: We've spotted 4 warning signs for Jiangxi Hongdu Aviation Industry you should be mindful of and 1 of them is concerning.

In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.