Changjiang Publishing & MediaLtd's (SHSE:600757) Promising Earnings May Rest On Soft Foundations

Changjiang Publishing & Media Co.,Ltd's (SHSE:600757) robust earnings report didn't manage to move the market for its stock. We did some digging, and we found some concerning factors in the details.

See our latest analysis for Changjiang Publishing & MediaLtd

An Unusual Tax Situation

Changjiang Publishing & MediaLtd reported a tax benefit of CN¥111m, which is well worth noting. This is meaningful because companies usually pay tax rather than receive tax benefits. The receipt of a tax benefit is obviously a good thing, on its own. However, the devil in the detail is that these kind of benefits only impact in the year they are booked, and are often one-off in nature. Assuming the tax benefit is not repeated every year, we could see its profitability drop noticeably, all else being equal. While we think it's good that the company has booked a tax benefit, it does mean that there's every chance the statutory profit will come in a lot higher than it would be if the income was adjusted for one-off factors.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Changjiang Publishing & MediaLtd.

Our Take On Changjiang Publishing & MediaLtd's Profit Performance

As we have already discussed Changjiang Publishing & MediaLtd reported that it received a tax benefit, rather than paying tax, in the last year. As a result we don't think its profit result, which includes that tax-boost, is a good guide to its sustainable profit levels. Because of this, we think that it may be that Changjiang Publishing & MediaLtd's statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 25% over the last three years. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Every company has risks, and we've spotted 1 warning sign for Changjiang Publishing & MediaLtd you should know about.

Today we've zoomed in on a single data point to better understand the nature of Changjiang Publishing & MediaLtd'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.

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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.