Investors Can Find Comfort In China Resources Chemical Innovative Materials' (SZSE:301090) Earnings Quality

The market for China Resources Chemical Innovative Materials Co., Ltd.'s (SZSE:301090) shares didn't move much after it posted weak earnings recently. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

Check out our latest analysis for China Resources Chemical Innovative Materials

The Impact Of Unusual Items On Profit

Importantly, our data indicates that China Resources Chemical Innovative Materials' profit was reduced by CN¥119m, due to unusual items, over the last year. 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, after all, that's exactly what the accounting terminology implies. China Resources Chemical Innovative Materials took a rather significant hit from unusual items in the year to March 2024. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of China Resources Chemical Innovative Materials.

Our Take On China Resources Chemical Innovative Materials' Profit Performance

As we discussed above, we think the significant unusual expense will make China Resources Chemical Innovative Materials' statutory profit lower than it would otherwise have been. Because of this, we think China Resources Chemical Innovative Materials' underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example, China Resources Chemical Innovative Materials has 4 warning signs (and 1 which is a bit concerning) we think you should know about.

Today we've zoomed in on a single data point to better understand the nature of China Resources Chemical Innovative Materials' profit. But there are plenty of other ways to inform your opinion of a company. 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.