Beijing Shengtong Printing's (SZSE:002599) Profits May Be Overstating Its True Earnings Potential

Beijing Shengtong Printing Co., Ltd's (SZSE:002599) stock performed strongly after the recent earnings report. Despite this, we feel that there are some reasons to be cautious with these earnings.

View our latest analysis for Beijing Shengtong Printing

Operating Revenue Or Not?

At most companies, some revenue streams, such as government grants, are accounted for as non-operating revenue, while the core business is said to produce operating revenue. Generally speaking, operating revenue is a more reliable guide to the sustainable revenue generating capacity of the business. However, we note that when non-operating revenue increases suddenly, it will sometimes generate an unsustainable boost to profit. It's worth noting that Beijing Shengtong Printing saw a big increase in non-operating revenue over the last year. In fact, our data indicates that non-operating revenue increased from CN¥660.1m to CN¥775.4m. The high levels of non-operating revenue are problematic because if (and when) they do not repeat, then overall revenue (and profitability) of the firm will fall. In order to better understand a company's profit result, it can sometimes help to consider whether the result would be very different without a sudden increase in non-operating revenue.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

The Impact Of Unusual Items On Profit

Alongside that spike in non-operating revenue, it's also important to note that Beijing Shengtong Printing'sprofit was boosted by unusual items worth CN¥13m in the last twelve months. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And, after all, that's exactly what the accounting terminology implies. Beijing Shengtong Printing had a rather significant contribution from unusual items relative to its profit 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.

Our Take On Beijing Shengtong Printing's Profit Performance

In the last year Beijing Shengtong Printing's non-operating revenue really gave it a boost, but not in a way that is necessarily going to be sustained. Furthermore, unusual items also made a nice positive contribution to its profit, which may well drop next year (all else being equal) if these phenomena are not repeated. On reflection, the above-mentioned factors give us the strong impression that Beijing Shengtong Printing'sunderlying earnings power is not as good as it might seem, based on the statutory profit numbers. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. While conducting our analysis, we found that Beijing Shengtong Printing has 1 warning sign and it would be unwise to ignore it.

Our examination of Beijing Shengtong Printing 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 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 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.