Guangzhou Risong Intelligent Technology Holding's (SHSE:688090) Earnings Might Not Be As Promising As They Seem

Guangzhou Risong Intelligent Technology Holding Co., Ltd.'s (SHSE:688090) solid earnings report last week was underwhelming to investors. We did some digging and found some worrying factors that they might be paying attention to.

View our latest analysis for Guangzhou Risong Intelligent Technology Holding

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Guangzhou Risong Intelligent Technology Holding's profit received a boost of CN¥35m in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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. Guangzhou Risong Intelligent Technology Holding had a rather significant contribution from unusual items relative to its profit to March 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger 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 Guangzhou Risong Intelligent Technology Holding.

An Unusual Tax Situation

Having already discussed the impact of the unusual items, we should also note that Guangzhou Risong Intelligent Technology Holding received a tax benefit of CN¥937k. It's always a bit noteworthy when a company is paid by the tax man, rather than paying the tax man. We're sure the company was pleased with its tax benefit. And given that it lost money last year, it seems possible that the benefit is evidence that it now expects to find value in its past tax losses. However, our data indicates that tax benefits can temporarily boost statutory profit in the year it is booked, but subsequently profit may fall back. Assuming the tax benefit is not repeated every year, we could see its profitability drop noticeably, all else being equal. 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 Guangzhou Risong Intelligent Technology Holding's Profit Performance

In its last report Guangzhou Risong Intelligent Technology Holding received a tax benefit which might make its profit look better than it really is on a underlying level. Furthermore, it also benefitted from a positive unusual item, which boosted the profit result even higher. For the reasons mentioned above, we think that a perfunctory glance at Guangzhou Risong Intelligent Technology Holding's statutory profits might make it look better than it really is on an underlying level. 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 Guangzhou Risong Intelligent Technology Holding 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 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.