Weak Statutory Earnings May Not Tell The Whole Story For Jiangsu Cai Qin Technology (SHSE:688182)

The subdued market reaction suggests that Jiangsu Cai Qin Technology Co., Ltd's (SHSE:688182) recent earnings didn't contain any surprises. We think that investors are worried about some weaknesses underlying the earnings.

See our latest analysis for Jiangsu Cai Qin Technology

How Do Unusual Items Influence Profit?

For anyone who wants to understand Jiangsu Cai Qin Technology's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥8.8m 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. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. We can see that Jiangsu Cai Qin Technology's positive unusual items were quite significant relative to its profit in the year to March 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger 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 Jiangsu Cai Qin Technology.

Our Take On Jiangsu Cai Qin Technology's Profit Performance

As we discussed above, we think the significant positive unusual item makes Jiangsu Cai Qin Technology's earnings a poor guide to its underlying profitability. For this reason, we think that Jiangsu Cai Qin Technology's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. In further bad news, its earnings per share decreased in the last year. 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 Jiangsu Cai Qin Technology at this point in time. Every company has risks, and we've spotted 3 warning signs for Jiangsu Cai Qin Technology (of which 2 can't be ignored!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of Jiangsu Cai Qin Technology's profit. 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. 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.