Some Investors May Be Willing To Look Past BCEG Environmental Remediation's (SZSE:300958) Soft Earnings

The market for BCEG Environmental Remediation Co., Ltd.'s (SZSE:300958) shares didn't move much after it posted weak earnings recently. We did some digging, and we believe the earnings are stronger than they seem.

Check out our latest analysis for BCEG Environmental Remediation

The Impact Of Unusual Items On Profit

To properly understand BCEG Environmental Remediation's profit results, we need to consider the CN¥20m expense attributed 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. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. BCEG Environmental Remediation took a rather significant hit from unusual items in the year to September 2024. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.

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

An Unusual Tax Situation

Just as we noted the unusual items, we must inform you that BCEG Environmental Remediation received a tax benefit which contributed CN¥13m to the bottom line. This is of course a bit out of the ordinary, given it is more common for companies to be paying tax than receiving tax benefits! 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.

Our Take On BCEG Environmental Remediation's Profit Performance

In the last year BCEG Environmental Remediation 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. Having said that, it also had a unusual item reducing its profit. Considering the aforementioned, we think that BCEG Environmental Remediation's profits are probably a reasonable reflection of its underlying profitability; although we'd be confident in that conclusion if we saw a cleaner set of results. If you want to do dive deeper into BCEG Environmental Remediation, you'd also look into what risks it is currently facing. To that end, you should learn about the 4 warning signs we've spotted with BCEG Environmental Remediation (including 2 which shouldn't be ignored).

Our examination of BCEG Environmental Remediation has focussed on certain factors that can make its earnings look better than they are. 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.