Zhejiang East Asia Pharmaceutical's (SHSE:605177) Shareholders Have More To Worry About Than Only Soft Earnings

The subdued market reaction suggests that Zhejiang East Asia Pharmaceutical Co., Ltd.'s (SHSE:605177) recent earnings didn't contain any surprises. However, we believe that investors should be aware of some underlying factors which may be of concern.

See our latest analysis for Zhejiang East Asia Pharmaceutical

The Impact Of Unusual Items On Profit

To properly understand Zhejiang East Asia Pharmaceutical's profit results, we need to consider the CN¥12m gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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. If Zhejiang East Asia Pharmaceutical doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

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 Zhejiang East Asia Pharmaceutical's Profit Performance

Arguably, Zhejiang East Asia Pharmaceutical's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Zhejiang East Asia Pharmaceutical's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 30% per annum growth in EPS for the last three. 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'd like to know more about Zhejiang East Asia Pharmaceutical as a business, it's important to be aware of any risks it's facing. At Simply Wall St, we found 2 warning signs for Zhejiang East Asia Pharmaceutical and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of Zhejiang East Asia Pharmaceutical'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.

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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.