Investors Can Find Comfort In Xinjiang Tianrun Dairy's (SHSE:600419) Earnings Quality

The market was pleased with the recent earnings report from Xinjiang Tianrun Dairy Co., Ltd. (SHSE:600419), despite the profit numbers being soft. However, we think the company is showing some signs that things are more promising than they seem.

View our latest analysis for Xinjiang Tianrun Dairy

How Do Unusual Items Influence Profit?

For anyone who wants to understand Xinjiang Tianrun Dairy's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥74m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. In the twelve months to September 2024, Xinjiang Tianrun Dairy had a big unusual items expense. As a result, we can surmise that the unusual items made its statutory profit significantly weaker than it would otherwise be.

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.

Our Take On Xinjiang Tianrun Dairy's Profit Performance

As we discussed above, we think the significant unusual expense will make Xinjiang Tianrun Dairy's statutory profit lower than it would otherwise have been. Because of this, we think Xinjiang Tianrun Dairy's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Case in point: We've spotted 4 warning signs for Xinjiang Tianrun Dairy you should be mindful of and 1 of them is concerning.

This note has only looked at a single factor that sheds light on the nature of Xinjiang Tianrun Dairy'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.