There May Be Reason For Hope In Shanghai Shenqi Pharmaceutical Investment Management's (SHSE:600613) Disappointing Earnings

Shanghai Shenqi Pharmaceutical Investment Management Co., Ltd.'s (SHSE:600613) earnings announcement last week didn't impress shareholders. Despite the soft profit numbers, our analysis has optimistic about the overall quality of the income statement.

Check out our latest analysis for Shanghai Shenqi Pharmaceutical Investment Management

How Do Unusual Items Influence Profit?

For anyone who wants to understand Shanghai Shenqi Pharmaceutical Investment Management's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥48m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. If Shanghai Shenqi Pharmaceutical Investment Management doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Shanghai Shenqi Pharmaceutical Investment Management.

Our Take On Shanghai Shenqi Pharmaceutical Investment Management's Profit Performance

Unusual items (expenses) detracted from Shanghai Shenqi Pharmaceutical Investment Management's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Shanghai Shenqi Pharmaceutical Investment Management's statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over the last year. 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. So while earnings quality is important, it's equally important to consider the risks facing Shanghai Shenqi Pharmaceutical Investment Management at this point in time. Case in point: We've spotted 2 warning signs for Shanghai Shenqi Pharmaceutical Investment Management you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Shanghai Shenqi Pharmaceutical Investment Management's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 with high insider ownership.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.