There May Be Reason For Hope In Anhui Annada Titanium Industry's (SZSE:002136) Disappointing Earnings

Anhui Annada Titanium Industry Co., Ltd.'s (SZSE:002136) stock was strong despite it releasing a soft earnings report last week. Our analysis suggests that investors may have noticed some promising signs beyond the statutory profit figures.

View our latest analysis for Anhui Annada Titanium Industry

The Impact Of Unusual Items On Profit

For anyone who wants to understand Anhui Annada Titanium Industry's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥25m 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. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Anhui Annada Titanium Industry to produce a higher profit next year, all else being equal.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Anhui Annada Titanium Industry.

An Unusual Tax Situation

Having already discussed the impact of the unusual items, we should also note that Anhui Annada Titanium Industry received a tax benefit of CN¥5.8m. It's always a bit noteworthy when a company is paid by the tax man, rather than paying the tax man. The receipt of a tax benefit is obviously a good thing, on its own. However, our data indicates that tax benefits can temporarily boost statutory profit in the year it is booked, but subsequently profit may fall back. Assuming the tax benefit is not repeated every year, we could see its profitability drop noticeably, all else being equal. While we think it's good that the company has booked a tax benefit, it does mean that there's every chance the statutory profit will come in a lot higher than it would be if the income was adjusted for one-off factors.

Our Take On Anhui Annada Titanium Industry's Profit Performance

In the last year Anhui Annada Titanium Industry received a tax benefit, which boosted its profit in a way that might not be much more sustainable than turning prime farmland into gas fields. Having said that, it also had a unusual item reducing its profit. Considering all the aforementioned, we'd venture that Anhui Annada Titanium Industry's profit result is a pretty good guide to its true profitability, albeit a bit on the conservative side. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. In terms of investment risks, we've identified 3 warning signs with Anhui Annada Titanium Industry, and understanding these should be part of your investment process.

Our examination of Anhui Annada Titanium Industry has focussed on certain factors that can make its earnings look better than they are. 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. 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.

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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.