Weak Statutory Earnings May Not Tell The Whole Story For Hebei Jianxin Chemical (SZSE:300107)

Following the release of a lackluster earnings report from Hebei Jianxin Chemical Co., Ltd. (SZSE:300107) the stock price made a strong positive move. We did some analysis and found some positive factors that investors might be paying attention to rather than profit.

Check out our latest analysis for Hebei Jianxin Chemical

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Hebei Jianxin Chemical's profit was reduced by CN¥428k, due to unusual items, over the last year. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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. If Hebei Jianxin 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 Hebei Jianxin Chemical.

An Unusual Tax Situation

Just as we noted the unusual items, we must inform you that Hebei Jianxin Chemical received a tax benefit which contributed CN¥687k to the bottom line. 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, the devil in the detail is that these kind of benefits only impact in the year they are booked, and are often one-off in nature. In the likely event the tax benefit is not repeated, we'd expect to see its statutory profit levels drop, at least in the absence of strong growth. So while we think it's great to receive a tax benefit, it does tend to imply an increased risk that the statutory profit overstates the sustainable earnings power of the business.

Our Take On Hebei Jianxin Chemical's Profit Performance

In its last report Hebei Jianxin Chemical received a tax benefit which might make its profit look better than it really is on a underlying level. But on the other hand, it also saw an unusual item depress its profit. Given the contrasting considerations, we don't have a strong view as to whether Hebei Jianxin Chemical's profits are an apt reflection of its underlying potential for profit. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example, Hebei Jianxin Chemical has 3 warning signs (and 2 which make us uncomfortable) we think you should know about.

Our examination of Hebei Jianxin Chemical 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.