Guangdong VTR Bio-Tech's (SZSE:300381) Soft Earnings Are Actually Better Than They Appear

The market was pleased with the recent earnings report from Guangdong VTR Bio-Tech Co., Ltd. (SZSE:300381), despite the profit numbers being soft. However, we think the company is showing some signs that things are more promising than they seem.

View our latest analysis for Guangdong VTR Bio-Tech

The Impact Of Unusual Items On Profit

For anyone who wants to understand Guangdong VTR Bio-Tech's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥7.0m due 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, after all, that's exactly what the accounting terminology implies. In the twelve months to March 2024, Guangdong VTR Bio-Tech 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Guangdong VTR Bio-Tech.

Our Take On Guangdong VTR Bio-Tech's Profit Performance

As we discussed above, we think the significant unusual expense will make Guangdong VTR Bio-Tech's statutory profit lower than it would otherwise have been. Based on this observation, we consider it possible that Guangdong VTR Bio-Tech'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. So while earnings quality is important, it's equally important to consider the risks facing Guangdong VTR Bio-Tech at this point in time. While conducting our analysis, we found that Guangdong VTR Bio-Tech has 3 warning signs and it would be unwise to ignore these bad boys.

Today we've zoomed in on a single data point to better understand the nature of Guangdong VTR Bio-Tech'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 that insiders are buying 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.