Yonker Environmental ProtectionLtd's (SZSE:300187) Earnings Might Not Be As Promising As They Seem

Solid profit numbers didn't seem to be enough to please Yonker Environmental Protection Co.,Ltd's (SZSE:300187) shareholders. We think that they might be concerned about some underlying details that our analysis found.

See our latest analysis for Yonker Environmental ProtectionLtd

The Impact Of Unusual Items On Profit

To properly understand Yonker Environmental ProtectionLtd's profit results, we need to consider the CN¥122m gain attributed to unusual items. 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 analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. Yonker Environmental ProtectionLtd had a rather significant contribution from unusual items relative to its profit to March 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Yonker Environmental ProtectionLtd.

An Unusual Tax Situation

Having already discussed the impact of the unusual items, we should also note that Yonker Environmental ProtectionLtd received a tax benefit of CN¥1.8m. 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. And since it previously lost money, it may well simply indicate the realisation of 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 Yonker Environmental ProtectionLtd's Profit Performance

In its last report Yonker Environmental ProtectionLtd received a tax benefit which might make its profit look better than it really is on a underlying level. 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. Considering all this we'd argue Yonker Environmental ProtectionLtd's profits probably give an overly generous impression of its sustainable level of profitability. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Be aware that Yonker Environmental ProtectionLtd is showing 2 warning signs in our investment analysis and 1 of those is a bit unpleasant...

Our examination of Yonker Environmental ProtectionLtd 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. Some people consider a high return on equity to be a good sign of a quality business. 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.