We Think You Can Look Beyond Guangdong Zhongsheng Pharmaceutical's (SZSE:002317) Lackluster Earnings

Shareholders appeared unconcerned with Guangdong Zhongsheng Pharmaceutical Co., Ltd.'s (SZSE:002317) lackluster earnings report last week. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

See our latest analysis for Guangdong Zhongsheng Pharmaceutical

The Impact Of Unusual Items On Profit

For anyone who wants to understand Guangdong Zhongsheng Pharmaceutical's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥30m due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Guangdong Zhongsheng Pharmaceutical to produce a higher profit next year, all else being equal.

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 Guangdong Zhongsheng Pharmaceutical's Profit Performance

Because unusual items detracted from Guangdong Zhongsheng Pharmaceutical's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Guangdong Zhongsheng Pharmaceutical's statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in the last twelve months. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. In terms of investment risks, we've identified 2 warning signs with Guangdong Zhongsheng Pharmaceutical, and understanding these should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Guangdong Zhongsheng Pharmaceutical's profit. But there are plenty of other ways to inform your opinion of a company. 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.