Investors Can Find Comfort In Shenzhen Jinjia GroupLtd's (SZSE:002191) Earnings Quality

Soft earnings didn't appear to concern Shenzhen Jinjia Group Co.,Ltd.'s (SZSE:002191) shareholders over the last week. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

View our latest analysis for Shenzhen Jinjia GroupLtd

How Do Unusual Items Influence Profit?

For anyone who wants to understand Shenzhen Jinjia GroupLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥286m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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. In the twelve months to December 2023, Shenzhen Jinjia GroupLtd had a big unusual items expense. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Shenzhen Jinjia GroupLtd's Profit Performance

As we discussed above, we think the significant unusual expense will make Shenzhen Jinjia GroupLtd's statutory profit lower than it would otherwise have been. Based on this observation, we consider it possible that Shenzhen Jinjia GroupLtd's statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over the 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Our analysis shows 3 warning signs for Shenzhen Jinjia GroupLtd (2 make us uncomfortable!) and we strongly recommend you look at them before investing.

This note has only looked at a single factor that sheds light on the nature of Shenzhen Jinjia GroupLtd'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.