Some Investors May Be Willing To Look Past Sichuan Tianyi Comheart Telecom's (SZSE:300504) Soft Earnings

Soft earnings didn't appear to concern Sichuan Tianyi Comheart Telecom Co., Ltd.'s (SZSE:300504) shareholders over the last week. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

Check out our latest analysis for Sichuan Tianyi Comheart Telecom

How Do Unusual Items Influence Profit?

For anyone who wants to understand Sichuan Tianyi Comheart Telecom's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥3.7m 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, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Sichuan Tianyi Comheart Telecom to produce a higher profit next year, all else being equal.

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.

An Unusual Tax Situation

Having already discussed the impact of the unusual items, we should also note that Sichuan Tianyi Comheart Telecom received a tax benefit of CN¥2.5m. It's always a bit noteworthy when a company is paid by the tax man, rather than paying the tax man. Of course, prima facie it's great to receive a 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. Assuming the tax benefit is not repeated every year, we could see its profitability drop noticeably, all else being equal. 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 Sichuan Tianyi Comheart Telecom's Profit Performance

In the last year Sichuan Tianyi Comheart Telecom 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 Sichuan Tianyi Comheart Telecom's profits are a reasonable reflection of its underlying profitability. If you want to do dive deeper into Sichuan Tianyi Comheart Telecom, you'd also look into what risks it is currently facing. When we did our research, we found 4 warning signs for Sichuan Tianyi Comheart Telecom (1 is concerning!) that we believe deserve your full attention.

In this article we've looked at a number of factors that can impair the utility of profit numbers, as a guide to a business. 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 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.