Why Anfu CE LINK's (SZSE:300787) Soft Earnings Are Just The Beginning Of Its Problems

Investors were disappointed with Anfu CE LINK Limited's (SZSE:300787) recent earnings. We think that they may have more to worry about than just soft profit numbers.

Check out our latest analysis for Anfu CE LINK

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Anfu CE LINK's profit received a boost of CN¥30m in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And, after all, that's exactly what the accounting terminology implies. Anfu CE LINK had a rather significant contribution from unusual items relative to its profit to September 2024. 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 Anfu CE LINK.

An Unusual Tax Situation

Having already discussed the impact of the unusual items, we should also note that Anfu CE LINK received a tax benefit of CN¥5.7m. This is meaningful because companies usually pay tax rather than receive tax benefits. Of course, prima facie it's great to receive a tax benefit. However, the devil in the detail is that these kind of benefits only impact in the year they are booked, and are often one-off in nature. 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. While we think it's good that the company has booked a tax benefit, it does mean that there's every chance the statutory profit will come in a lot higher than it would be if the income was adjusted for one-off factors.

Our Take On Anfu CE LINK's Profit Performance

In its last report Anfu CE LINK received a tax benefit which might make its profit look better than it really is on a underlying level. Furthermore, it also benefitted from a positive unusual item, which boosted the profit result even higher. For the reasons mentioned above, we think that a perfunctory glance at Anfu CE LINK's statutory profits might make it look better than it really is on an underlying level. If you want to do dive deeper into Anfu CE LINK, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 3 warning signs for Anfu CE LINK you should know about.

Our examination of Anfu CE LINK has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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. 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.