Everjoy Health Group's (SZSE:002162) Solid Earnings Are Supported By Other Strong Factors

Everjoy Health Group Co., Ltd. (SZSE:002162) just reported healthy earnings but the stock price didn't move much. We think that investors have missed some encouraging factors underlying the profit figures.

See our latest analysis for Everjoy Health Group

How Do Unusual Items Influence Profit?

For anyone who wants to understand Everjoy Health Group's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥42m 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. Everjoy Health Group took a rather significant hit from unusual items in the year to December 2023. 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 Everjoy Health Group.

An Unusual Tax Situation

Having already discussed the impact of the unusual items, we should also note that Everjoy Health Group received a tax benefit of CN¥8.6m. It's always a bit noteworthy when a company is paid by the tax man, rather than paying the tax man. The receipt of a tax benefit is obviously a good thing, on its own. 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, 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 Everjoy Health Group's Profit Performance

In the last year Everjoy Health Group 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. But on the other hand, it also saw an unusual item depress its profit. Considering all the aforementioned, we'd venture that Everjoy Health Group's profit result is a pretty good guide to its true profitability, albeit a bit on the conservative side. If you want to do dive deeper into Everjoy Health Group, you'd also look into what risks it is currently facing. In terms of investment risks, we've identified 1 warning sign with Everjoy Health Group, and understanding this should be part of your investment process.

In this article we've looked at a number of factors that can impair the utility of profit numbers, as a guide to a business. 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. 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.