Additional Considerations Required While Assessing Nanning Department Store's (SHSE:600712) Strong Earnings

Nanning Department Store Co., Ltd. (SHSE:600712) announced strong profits, but the stock was stagnant. Our analysis suggests that shareholders have noticed something concerning in the numbers.

View our latest analysis for Nanning Department Store

How Do Unusual Items Influence Profit?

For anyone who wants to understand Nanning Department Store's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥22m worth of unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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. We can see that Nanning Department Store's positive unusual items were quite significant relative to its profit in the year to December 2023. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Nanning Department Store.

Our Take On Nanning Department Store's Profit Performance

As previously mentioned, Nanning Department Store'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 Nanning Department Store's underlying earnings power is lower than its statutory profit. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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. If you'd like to know more about Nanning Department Store as a business, it's important to be aware of any risks it's facing. You'd be interested to know, that we found 1 warning sign for Nanning Department Store and you'll want to know about this.

Today we've zoomed in on a single data point to better understand the nature of Nanning Department Store'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. 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.