Shanghai Film's (SHSE:601595) Promising Earnings May Rest On Soft Foundations

Unsurprisingly, Shanghai Film Co., Ltd.'s (SHSE:601595) stock price was strong on the back of its healthy earnings report. However, we think that shareholders may be missing some concerning details in the numbers.

See our latest analysis for Shanghai Film

The Impact Of Unusual Items On Profit

For anyone who wants to understand Shanghai Film's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥59m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. We can see that Shanghai Film's positive unusual items were quite significant relative to its profit in the year to March 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

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.

Our Take On Shanghai Film's Profit Performance

As we discussed above, we think the significant positive unusual item makes Shanghai Film's earnings a poor guide to its underlying profitability. For this reason, we think that Shanghai Film's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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 want to do dive deeper into Shanghai Film, you'd also look into what risks it is currently facing. In terms of investment risks, we've identified 2 warning signs with Shanghai Film, and understanding them should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Shanghai Film'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. 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.