Qingdao Kingking Applied Chemistry (SZSE:002094) Strong Profits May Be Masking Some Underlying Issues

The market for Qingdao Kingking Applied Chemistry Co., Ltd.'s (SZSE:002094) stock was strong after it released a healthy earnings report last week. Despite this, our analysis suggests that there are some factors weakening the foundations of those good profit numbers.

See our latest analysis for Qingdao Kingking Applied Chemistry

The Impact Of Unusual Items On Profit

For anyone who wants to understand Qingdao Kingking Applied Chemistry's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥24m worth of unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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 that's as you'd expect, given these boosts are described as 'unusual'. Qingdao Kingking Applied Chemistry had a rather significant contribution from unusual items relative to its profit to September 2024. 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 Qingdao Kingking Applied Chemistry.

Our Take On Qingdao Kingking Applied Chemistry's Profit Performance

As previously mentioned, Qingdao Kingking Applied Chemistry's large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. As a result, we think it may well be the case that Qingdao Kingking Applied Chemistry'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. If you'd like to know more about Qingdao Kingking Applied Chemistry as a business, it's important to be aware of any risks it's facing. For instance, we've identified 2 warning signs for Qingdao Kingking Applied Chemistry (1 can't be ignored) you should be familiar with.

This note has only looked at a single factor that sheds light on the nature of Qingdao Kingking Applied Chemistry'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.