Weak Statutory Earnings May Not Tell The Whole Story For Guangdong Yantang Dairy (SZSE:002732)

Guangdong Yantang Dairy Co., Ltd.'s (SZSE:002732) recent weak earnings report didn't cause a big stock movement. However, we believe that investors should be aware of some underlying factors which may be of concern.

Check out our latest analysis for Guangdong Yantang Dairy

How Do Unusual Items Influence Profit?

To properly understand Guangdong Yantang Dairy's profit results, we need to consider the CN¥30m 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. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. If Guangdong Yantang Dairy 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 Guangdong Yantang Dairy.

Our Take On Guangdong Yantang Dairy's Profit Performance

We'd posit that Guangdong Yantang Dairy's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Guangdong Yantang Dairy's statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you want to do dive deeper into Guangdong Yantang Dairy, you'd also look into what risks it is currently facing. You'd be interested to know, that we found 2 warning signs for Guangdong Yantang Dairy and you'll want to know about these bad boys.

This note has only looked at a single factor that sheds light on the nature of Guangdong Yantang Dairy's profit. 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 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.