Jiangnan Yifan MotorLtd's (SZSE:301023) Conservative Accounting Might Explain Soft Earnings

The market was pleased with the recent earnings report from Jiangnan Yifan Motor Co.,Ltd (SZSE:301023), despite the profit numbers being soft. Our analysis suggests that investors may have noticed some promising signs beyond the statutory profit figures.

See our latest analysis for Jiangnan Yifan MotorLtd

How Do Unusual Items Influence Profit?

For anyone who wants to understand Jiangnan Yifan MotorLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥5.8m 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 that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Jiangnan Yifan MotorLtd to produce a higher profit next year, all else being equal.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Jiangnan Yifan MotorLtd.

Our Take On Jiangnan Yifan MotorLtd's Profit Performance

Unusual items (expenses) detracted from Jiangnan Yifan MotorLtd's earnings over the last year, but we might see an improvement next year. Because of this, we think Jiangnan Yifan MotorLtd's earnings potential is at least as good as it seems, and maybe even better! On the other hand, its EPS actually shrunk in the last twelve months. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Our analysis shows 4 warning signs for Jiangnan Yifan MotorLtd (3 are a bit unpleasant!) and we strongly recommend you look at these before investing.

Today we've zoomed in on a single data point to better understand the nature of Jiangnan Yifan MotorLtd's profit. 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.