We Think Northern United Publishing & Media (Group)'s (SHSE:601999) Solid Earnings Are Understated

The market seemed underwhelmed by last week's earnings announcement from Northern United Publishing & Media (Group) Company Limited (SHSE:601999) despite the healthy numbers. We did some digging, and we think that investors are missing some encouraging factors in the underlying numbers.

See our latest analysis for Northern United Publishing & Media (Group)

How Do Unusual Items Influence Profit?

For anyone who wants to understand Northern United Publishing & Media (Group)'s profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥18m due to unusual items. 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 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 Northern United Publishing & Media (Group) 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 Northern United Publishing & Media (Group).

An Unusual Tax Situation

Having already discussed the impact of the unusual items, we should also note that Northern United Publishing & Media (Group) received a tax benefit of CN¥19m. This is meaningful because companies usually pay tax rather than receive tax benefits. We're sure the company was pleased with its tax benefit. 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.

Our Take On Northern United Publishing & Media (Group)'s Profit Performance

In the last year Northern United Publishing & Media (Group) received a tax benefit, which boosted its profit in a way that might not be much more sustainable than turning prime farmland into gas fields. But on the other hand, it also saw an unusual item depress its profit. Given the contrasting considerations, we don't have a strong view as to whether Northern United Publishing & Media (Group)'s profits are an apt reflection of its underlying potential for profit. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. For example, Northern United Publishing & Media (Group) has 2 warning signs (and 1 which is significant) we think you should know about.

Our examination of Northern United Publishing & Media (Group) has focussed on certain factors that can make its earnings look better than they are. 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. 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.