Liuzhou Liangmianzhen's (SHSE:600249) Earnings Are Of Questionable Quality

Despite posting some strong earnings, the market for Liuzhou Liangmianzhen Co., Ltd.'s (SHSE:600249) stock hasn't moved much. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

See our latest analysis for Liuzhou Liangmianzhen

How Do Unusual Items Influence Profit?

To properly understand Liuzhou Liangmianzhen's profit results, we need to consider the CN¥11m 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. We can see that Liuzhou Liangmianzhen's positive unusual items were quite significant relative to its profit in the year to December 2023. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Liuzhou Liangmianzhen.

Our Take On Liuzhou Liangmianzhen's Profit Performance

As we discussed above, we think the significant positive unusual item makes Liuzhou Liangmianzhen's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Liuzhou Liangmianzhen's underlying earnings power is lower than its statutory profit. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Liuzhou Liangmianzhen.

Today we've zoomed in on a single data point to better understand the nature of Liuzhou Liangmianzhen's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.