Beijing Zhong Ke San Huan High-Tech's (SZSE:000970) Soft Earnings Are Actually Better Than They Appear

The most recent earnings report from Beijing Zhong Ke San Huan High-Tech Co., Ltd. (SZSE:000970) was disappointing for shareholders. While the headline numbers were soft, we believe that investors might be missing some encouraging factors.

View our latest analysis for Beijing Zhong Ke San Huan High-Tech

How Do Unusual Items Influence Profit?

For anyone who wants to understand Beijing Zhong Ke San Huan High-Tech's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥49m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. In the twelve months to March 2024, Beijing Zhong Ke San Huan High-Tech had a big unusual items expense. As a result, we can surmise that the unusual items made its statutory profit significantly weaker than it would otherwise be.

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 Beijing Zhong Ke San Huan High-Tech's Profit Performance

As we discussed above, we think the significant unusual expense will make Beijing Zhong Ke San Huan High-Tech's statutory profit lower than it would otherwise have been. Based on this observation, we consider it possible that Beijing Zhong Ke San Huan High-Tech's statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over the 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 Beijing Zhong Ke San Huan High-Tech at this point in time. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of Beijing Zhong Ke San Huan High-Tech.

This note has only looked at a single factor that sheds light on the nature of Beijing Zhong Ke San Huan High-Tech's profit. But there are plenty of other ways to inform your opinion of a company. 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 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.