There May Be Reason For Hope In Jiangsu Flag Chemical Industry's (SZSE:300575) Disappointing Earnings

Soft earnings didn't appear to concern Jiangsu Flag Chemical Industry Co., Ltd.'s (SZSE:300575) shareholders over the last week. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

Check out our latest analysis for Jiangsu Flag Chemical Industry

The Impact Of Unusual Items On 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¥11m 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. Jiangsu Flag Chemical Industry took a rather significant hit from unusual items in the year to September 2024. As a result, we can surmise that the unusual items made its statutory profit significantly weaker than it would otherwise be.

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.

An Unusual Tax Situation

Just as we noted the unusual items, we must inform you that Jiangsu Flag Chemical Industry received a tax benefit which contributed CN¥12m to the bottom line. This is of course a bit out of the ordinary, given it is more common for companies to be paying tax than receiving tax benefits! Of course, prima facie it's great to receive a tax benefit. However, our data indicates that tax benefits can temporarily boost statutory profit in the year it is booked, but subsequently profit may fall back. 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.

Our Take On Jiangsu Flag Chemical Industry's Profit Performance

In the last year Jiangsu Flag Chemical 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 the aforementioned, we think that Jiangsu Flag Chemical Industry's profits are probably a reasonable reflection of its underlying profitability; although we'd be confident in that conclusion if we saw a cleaner set of results. If you want to do dive deeper into Jiangsu Flag Chemical Industry, you'd also look into what risks it is currently facing. To that end, you should learn about the 3 warning signs we've spotted with Jiangsu Flag Chemical Industry (including 1 which is a bit concerning).

Our examination of Jiangsu Flag Chemical Industry has focussed on certain factors that can make its earnings look better than they are. 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 with significant insider holdings 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.