Some May Be Optimistic About Jiangsu Lianfa TextileLtd's (SZSE:002394) Earnings

The market for Jiangsu Lianfa Textile Co.,Ltd's (SZSE:002394) shares didn't move much after it posted weak earnings recently. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

View our latest analysis for Jiangsu Lianfa TextileLtd

How Do Unusual Items Influence Profit?

For anyone who wants to understand Jiangsu Lianfa TextileLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥121m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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. If Jiangsu Lianfa TextileLtd doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Jiangsu Lianfa TextileLtd.

Our Take On Jiangsu Lianfa TextileLtd's Profit Performance

Unusual items (expenses) detracted from Jiangsu Lianfa TextileLtd's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Jiangsu Lianfa TextileLtd's statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in the last twelve months. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Case in point: We've spotted 4 warning signs for Jiangsu Lianfa TextileLtd you should be mindful of and 2 of these are a bit concerning.

Today we've zoomed in on a single data point to better understand the nature of Jiangsu Lianfa TextileLtd's profit. 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 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.