Investors Can Find Comfort In Chongqing road & bridgeltd's (SHSE:600106) Earnings Quality

Shareholders appeared unconcerned with Chongqing road & bridge co.,ltd's (SHSE:600106) lackluster earnings report last week. We did some digging, and we believe the earnings are stronger than they seem.

View our latest analysis for Chongqing road & bridgeltd

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Chongqing road & bridgeltd's profit was reduced by CN¥30m, due to unusual items, over the last year. 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. In the twelve months to March 2024, Chongqing road & bridgeltd had a big unusual items expense. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Chongqing road & bridgeltd.

Our Take On Chongqing road & bridgeltd's Profit Performance

As we discussed above, we think the significant unusual expense will make Chongqing road & bridgeltd's statutory profit lower than it would otherwise have been. Because of this, we think Chongqing road & bridgeltd's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! And on top of that, its earnings per share increased by 6.1% in 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 Chongqing road & bridgeltd at this point in time. For example, Chongqing road & bridgeltd has 2 warning signs (and 1 which is a bit concerning) we think you should know about.

This note has only looked at a single factor that sheds light on the nature of Chongqing road & bridgeltd'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. 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.