Sichuan Goldstone Asia Pharmaceutical's (SZSE:300434) Conservative Accounting Might Explain Soft Earnings

Sichuan Goldstone Asia Pharmaceutical Inc.'s (SZSE:300434) recent soft profit numbers didn't appear to worry shareholders, as the stock price showed strength. However, we think the company is showing some signs that things are more promising than they seem.

Check out our latest analysis for Sichuan Goldstone Asia Pharmaceutical

The Impact Of Unusual Items On Profit

For anyone who wants to understand Sichuan Goldstone Asia Pharmaceutical's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥68m 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. 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. Sichuan Goldstone Asia Pharmaceutical took a rather significant hit from unusual items in the year to September 2024. 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 Sichuan Goldstone Asia Pharmaceutical.

Our Take On Sichuan Goldstone Asia Pharmaceutical's Profit Performance

As we discussed above, we think the significant unusual expense will make Sichuan Goldstone Asia Pharmaceutical's statutory profit lower than it would otherwise have been. Based on this observation, we consider it possible that Sichuan Goldstone Asia Pharmaceutical's statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in the last twelve months. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. In terms of investment risks, we've identified 3 warning signs with Sichuan Goldstone Asia 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 Sichuan Goldstone Asia Pharmaceutical'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.