Jiangsu SOPO Chemical's (SHSE:600746) Solid Earnings Have Been Accounted For Conservatively

The market seemed underwhelmed by last week's earnings announcement from Jiangsu SOPO Chemical Co. Ltd. (SHSE:600746) despite the healthy numbers. We did some digging, and we think that investors are missing some encouraging factors in the underlying numbers.

View our latest analysis for Jiangsu SOPO Chemical

The Impact Of Unusual Items On Profit

For anyone who wants to understand Jiangsu SOPO Chemical's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥40m due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. If Jiangsu SOPO Chemical doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Jiangsu SOPO Chemical.

Our Take On Jiangsu SOPO Chemical's Profit Performance

Unusual items (expenses) detracted from Jiangsu SOPO Chemical's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Jiangsu SOPO Chemical's statutory profit actually understates its earnings potential! And it's also positive that the company showed enough improvement to book a profit this year, after losing money last year. 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. While it's very important to consider the profit and loss statement, you can also learn a lot about a company by looking at its balance sheet. We've done some analysis and you can see our take on Jiangsu SOPO Chemical's balance sheet by clicking here.

This note has only looked at a single factor that sheds light on the nature of Jiangsu SOPO Chemical's profit. But there are plenty of other ways to inform your opinion of a company. 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 that insiders are buying 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.