Jiangsu Zhongshe Group's (SZSE:002883) Conservative Accounting Might Explain Soft Earnings

Shareholders appeared unconcerned with Jiangsu Zhongshe Group Co., Ltd.'s (SZSE:002883) lackluster earnings report last week. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

See our latest analysis for Jiangsu Zhongshe Group

The Impact Of Unusual Items On Profit

For anyone who wants to understand Jiangsu Zhongshe Group's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥28m 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. If Jiangsu Zhongshe Group doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

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

Our Take On Jiangsu Zhongshe Group's Profit Performance

Because unusual items detracted from Jiangsu Zhongshe Group's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Jiangsu Zhongshe Group's earnings potential is at least as good as it seems, and maybe even better! Unfortunately, though, its earnings per share actually fell back over the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you'd like to know more about Jiangsu Zhongshe Group as a business, it's important to be aware of any risks it's facing. When we did our research, we found 4 warning signs for Jiangsu Zhongshe Group (1 is a bit concerning!) that we believe deserve your full attention.

This note has only looked at a single factor that sheds light on the nature of Jiangsu Zhongshe Group's profit. But there are plenty of other ways to inform your opinion of a company. 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.