Weak Statutory Earnings May Not Tell The Whole Story For Sichuan Meifeng Chemical Industry (SZSE:000731)

Last week's earnings announcement from Sichuan Meifeng Chemical Industry Co., Ltd. (SZSE:000731) was disappointing to investors, with a sluggish profit figure. Our analysis has found some reasons to be concerned, beyond the weak headline numbers.

See our latest analysis for Sichuan Meifeng Chemical Industry

How Do Unusual Items Influence Profit?

For anyone who wants to understand Sichuan Meifeng Chemical Industry's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥30m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

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

Our Take On Sichuan Meifeng Chemical Industry's Profit Performance

We'd posit that Sichuan Meifeng Chemical Industry's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Sichuan Meifeng Chemical Industry's true underlying earnings power is actually less than its statutory profit. 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 Sichuan Meifeng Chemical Industry, you'd also look into what risks it is currently facing. In terms of investment risks, we've identified 2 warning signs with Sichuan Meifeng Chemical Industry, and understanding these bad boys should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Sichuan Meifeng Chemical Industry'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.

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.