Jiujiang Shanshui TechnologyLtd's (SZSE:301190) Conservative Accounting Might Explain Soft Earnings

The market for Jiujiang Shanshui Technology Co.,Ltd's (SZSE:301190) shares didn't move much after it posted weak earnings recently. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

View our latest analysis for Jiujiang Shanshui TechnologyLtd

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Jiujiang Shanshui TechnologyLtd's profit was reduced by CN¥127m, 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. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. In the twelve months to March 2024, Jiujiang Shanshui TechnologyLtd had a big unusual items expense. 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 Jiujiang Shanshui TechnologyLtd.

Our Take On Jiujiang Shanshui TechnologyLtd's Profit Performance

As we discussed above, we think the significant unusual expense will make Jiujiang Shanshui TechnologyLtd's statutory profit lower than it would otherwise have been. Based on this observation, we consider it possible that Jiujiang Shanshui TechnologyLtd's statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in the last twelve months. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you'd like to know more about Jiujiang Shanshui TechnologyLtd as a business, it's important to be aware of any risks it's facing. Our analysis shows 4 warning signs for Jiujiang Shanshui TechnologyLtd (2 are potentially serious!) and we strongly recommend you look at these before investing.

Today we've zoomed in on a single data point to better understand the nature of Jiujiang Shanshui TechnologyLtd's profit. 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 that insiders are buying 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.