Concerns Surrounding Zhejiang Tianyu Pharmaceutical's (SZSE:300702) Performance

Zhejiang Tianyu Pharmaceutical Co., Ltd. (SZSE:300702) just released a solid earnings report, and the stock displayed some strength. However, we think that shareholders should be cautious as we found some worrying factors underlying the profit.

Check out our latest analysis for Zhejiang Tianyu Pharmaceutical

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Zhejiang Tianyu Pharmaceutical's profit received a boost of CN¥13m in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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. Zhejiang Tianyu Pharmaceutical had a rather significant contribution from unusual items relative to its profit to June 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

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 Zhejiang Tianyu Pharmaceutical's Profit Performance

As previously mentioned, Zhejiang Tianyu Pharmaceutical's large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. As a result, we think it may well be the case that Zhejiang Tianyu Pharmaceutical's underlying earnings power is lower than its statutory profit. On the bright side, the company showed enough improvement to book a profit this year, after losing money 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. So while earnings quality is important, it's equally important to consider the risks facing Zhejiang Tianyu Pharmaceutical at this point in time. In terms of investment risks, we've identified 1 warning sign with Zhejiang Tianyu Pharmaceutical, and understanding this should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Zhejiang Tianyu Pharmaceutical's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.