Why Chongqing Pharscin Pharmaceutical's (SZSE:002907) Shaky Earnings Are Just The Beginning Of Its Problems

A lackluster earnings announcement from Chongqing Pharscin Pharmaceutical Co., Ltd. (SZSE:002907) last week didn't sink the stock price. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

Check out our latest analysis for Chongqing Pharscin Pharmaceutical

How Do Unusual Items Influence Profit?

For anyone who wants to understand Chongqing Pharscin Pharmaceutical's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥6.2m worth of unusual items. 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 Chongqing Pharscin Pharmaceutical 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 Chongqing Pharscin Pharmaceutical.

Our Take On Chongqing Pharscin Pharmaceutical's Profit Performance

Arguably, Chongqing Pharscin Pharmaceutical's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Chongqing Pharscin Pharmaceutical's true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over the last twelve months. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Every company has risks, and we've spotted 1 warning sign for Chongqing Pharscin Pharmaceutical you should know about.

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