Investors Can Find Comfort In Jiangsu Flag Chemical Industry's (SZSE:300575) Earnings Quality

Jiangsu Flag Chemical Industry Co., Ltd.'s (SZSE:300575) recent soft profit numbers didn't appear to worry shareholders, as the stock price showed strength. We think that investors might be looking at some positive factors beyond the earnings numbers.

See our latest analysis for Jiangsu Flag Chemical Industry

How Do Unusual Items Influence Profit?

For anyone who wants to understand Jiangsu Flag Chemical Industry's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥58m 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 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 Jiangsu Flag Chemical Industry to produce a higher profit next year, all else being equal.

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 Jiangsu Flag Chemical Industry's Profit Performance

Because unusual items detracted from Jiangsu Flag Chemical Industry's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Jiangsu Flag Chemical Industry's statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you'd like to know more about Jiangsu Flag Chemical Industry as a business, it's important to be aware of any risks it's facing. You'd be interested to know, that we found 3 warning signs for Jiangsu Flag Chemical Industry and you'll want to know about them.

Today we've zoomed in on a single data point to better understand the nature of Jiangsu Flag Chemical Industry's profit. 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.