Some May Be Optimistic About Tonghua Dongbao Pharmaceutical's (SHSE:600867) Earnings

Investors were disappointed with the weak earnings posted by Tonghua Dongbao Pharmaceutical Co., Ltd. (SHSE:600867 ). Despite the soft profit numbers, our analysis has optimistic about the overall quality of the income statement.

See our latest analysis for Tonghua Dongbao Pharmaceutical

The Impact Of Unusual Items On Profit

To properly understand Tonghua Dongbao Pharmaceutical's profit results, we need to consider the CN¥314m expense attributed 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. In the twelve months to June 2024, Tonghua Dongbao Pharmaceutical had a big unusual items expense. As a result, we can surmise that the unusual items made its statutory profit significantly weaker than it would otherwise be.

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 Tonghua Dongbao Pharmaceutical's Profit Performance

As we mentioned previously, the Tonghua Dongbao Pharmaceutical's profit was hampered by unusual items in the last year. Because of this, we think Tonghua Dongbao Pharmaceutical's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! 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 Tonghua Dongbao Pharmaceutical at this point in time. Case in point: We've spotted 3 warning signs for Tonghua Dongbao Pharmaceutical you should be mindful of and 1 of these doesn't sit too well with us.

This note has only looked at a single factor that sheds light on the nature of Tonghua Dongbao Pharmaceutical's profit. But there are plenty of other ways to inform your opinion of a company. 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 with significant insider holdings 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.