China Quanjude(Group)Ltd's (SZSE:002186) Earnings Are Weaker Than They Seem

Despite posting some strong earnings, the market for China Quanjude(Group) Co.,Ltd.'s (SZSE:002186) stock hasn't moved much. Our analysis suggests that shareholders have noticed something concerning in the numbers.

View our latest analysis for China Quanjude(Group)Ltd

How Do Unusual Items Influence Profit?

To properly understand China Quanjude(Group)Ltd's profit results, we need to consider the CN¥3.6m gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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. If China Quanjude(Group)Ltd doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of China Quanjude(Group)Ltd.

Our Take On China Quanjude(Group)Ltd's Profit Performance

Arguably, China Quanjude(Group)Ltd's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that China Quanjude(Group)Ltd's statutory profits are better than its underlying earnings power. On the bright side, the company showed enough improvement to book a profit this year, after losing money last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. Just as investors must consider earnings, it is also important to take into account the strength of a company's balance sheet. We've done some analysis and you can see our take on China Quanjude(Group)Ltd's balance sheet by clicking here.

Today we've zoomed in on a single data point to better understand the nature of China Quanjude(Group)Ltd's profit. 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. 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 with significant insider holdings 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.