Henan Jindan Lactic Acid TechnologyLtd's (SZSE:300829) Conservative Accounting Might Explain Soft Earnings

Henan Jindan Lactic Acid Technology Co.,Ltd.'s (SZSE:300829) 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 Henan Jindan Lactic Acid TechnologyLtd

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Henan Jindan Lactic Acid TechnologyLtd's profit was reduced by CN¥44m, 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. Assuming those unusual expenses don't come up again, we'd therefore expect Henan Jindan Lactic Acid TechnologyLtd 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 Henan Jindan Lactic Acid TechnologyLtd.

Our Take On Henan Jindan Lactic Acid TechnologyLtd's Profit Performance

Unusual items (expenses) detracted from Henan Jindan Lactic Acid TechnologyLtd's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Henan Jindan Lactic Acid TechnologyLtd'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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. To help with this, we've discovered 3 warning signs (2 shouldn't be ignored!) that you ought to be aware of before buying any shares in Henan Jindan Lactic Acid TechnologyLtd.

This note has only looked at a single factor that sheds light on the nature of Henan Jindan Lactic Acid TechnologyLtd's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.