Weak Statutory Earnings May Not Tell The Whole Story For Jiuzhitang (SZSE:000989)

Jiuzhitang Co., Ltd.'s (SZSE:000989) recent weak earnings report didn't cause a big stock movement. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

See our latest analysis for Jiuzhitang

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Jiuzhitang's profit received a boost of CN¥18m in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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 Jiuzhitang doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Jiuzhitang.

Our Take On Jiuzhitang's Profit Performance

Arguably, Jiuzhitang's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Jiuzhitang's statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in 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. If you want to do dive deeper into Jiuzhitang, you'd also look into what risks it is currently facing. Case in point: We've spotted 1 warning sign for Jiuzhitang you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Jiuzhitang'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.