North China Pharmaceutical Company.Ltd's (SHSE:600812) Profits Appear To Have Quality Issues

North China Pharmaceutical Company.Ltd's (SHSE:600812) healthy profit numbers didn't contain any surprises for investors. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.

View our latest analysis for North China Pharmaceutical Company.Ltd

The Impact Of Unusual Items On Profit

For anyone who wants to understand North China Pharmaceutical Company.Ltd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥50m worth of unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of North China Pharmaceutical Company.Ltd.

Our Take On North China Pharmaceutical Company.Ltd's Profit Performance

Arguably, North China Pharmaceutical Company.Ltd's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that North China Pharmaceutical Company.Ltd's statutory profits are better than its underlying earnings power. On the bright side, the company showed enough improvement to book a profit this year, after losing money 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 if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For instance, we've identified 2 warning signs for North China Pharmaceutical Company.Ltd (1 can't be ignored) you should be familiar with.

This note has only looked at a single factor that sheds light on the nature of North China Pharmaceutical Company.Ltd'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 with high insider ownership.

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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.