Beijing Jingyuntong Technology's (SHSE:601908) Sluggish Earnings Might Be Just The Beginning Of Its Problems

Investors weren't pleased with the recent soft earnings report from Beijing Jingyuntong Technology Co., Ltd. (SHSE:601908). We did some digging and believe that things are better than they seem due to some encouraging factors.

See our latest analysis for Beijing Jingyuntong Technology

The Impact Of Unusual Items On Profit

To properly understand Beijing Jingyuntong Technology's profit results, we need to consider the CN¥71m expense attributed 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 that's hardly a surprise given these line items are considered unusual. If Beijing Jingyuntong Technology doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Beijing Jingyuntong Technology.

An Unusual Tax Situation

Just as we noted the unusual items, we must inform you that Beijing Jingyuntong Technology received a tax benefit which contributed CN¥127m to the bottom line. This is of course a bit out of the ordinary, given it is more common for companies to be paying tax than receiving tax benefits! We're sure the company was pleased with its tax benefit. However, our data indicates that tax benefits can temporarily boost statutory profit in the year it is booked, but subsequently profit may fall back. In the likely event the tax benefit is not repeated, we'd expect to see its statutory profit levels drop, at least in the absence of strong growth. So while we think it's great to receive a tax benefit, it does tend to imply an increased risk that the statutory profit overstates the sustainable earnings power of the business.

Our Take On Beijing Jingyuntong Technology's Profit Performance

In the last year Beijing Jingyuntong Technology received a tax benefit, which boosted its profit in a way that might not be much more sustainable than turning prime farmland into gas fields. Having said that, it also had a unusual item reducing its profit. Based on these factors, it's hard to tell if Beijing Jingyuntong Technology's profits are a reasonable reflection of its underlying profitability. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. For example - Beijing Jingyuntong Technology has 2 warning signs we think you should be aware of.

Our examination of Beijing Jingyuntong Technology has focussed on certain factors that can make its earnings look better than they are. But there are plenty of other ways to inform your opinion of a company. 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 that insiders are buying.

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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.