Xiamen Jiarong TechnologyLtd (SZSE:301148) Posted Weak Earnings But There Is More To Worry About

Xiamen Jiarong Technology Corp.,Ltd. (SZSE:301148) recently posted soft earnings but shareholders didn't react strongly. We did some analysis and found some concerning details beneath the statutory profit number.

See our latest analysis for Xiamen Jiarong TechnologyLtd

How Do Unusual Items Influence Profit?

To properly understand Xiamen Jiarong TechnologyLtd's profit results, we need to consider the CN¥39m gain attributed to unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. We can see that Xiamen Jiarong TechnologyLtd's positive unusual items were quite significant relative to its profit in the year to September 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 Xiamen Jiarong TechnologyLtd.

An Unusual Tax Situation

Having already discussed the impact of the unusual items, we should also note that Xiamen Jiarong TechnologyLtd received a tax benefit of CN¥944k. It's always a bit noteworthy when a company is paid by the tax man, rather than paying the tax man. 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. In the likely event the tax benefit is not repeated, we'd expect to see its statutory profit levels drop, at least in the absence of strong growth. 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 Xiamen Jiarong TechnologyLtd's Profit Performance

In the last year Xiamen Jiarong TechnologyLtd 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. For the reasons mentioned above, we think that a perfunctory glance at Xiamen Jiarong TechnologyLtd's statutory profits might make it look better than it really is on an underlying level. If you want to do dive deeper into Xiamen Jiarong TechnologyLtd, you'd also look into what risks it is currently facing. Case in point: We've spotted 3 warning signs for Xiamen Jiarong TechnologyLtd you should be mindful of and 1 of these bad boys makes us a bit uncomfortable.

Our examination of Xiamen Jiarong TechnologyLtd has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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 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.