Dazhong Transportation (Group)'s (SHSE:600611) Earnings Are Of Questionable Quality

Despite posting some strong earnings, the market for Dazhong Transportation (Group) Co., Ltd.'s (SHSE:600611) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.

View our latest analysis for Dazhong Transportation (Group)

The Impact Of Unusual Items On Profit

For anyone who wants to understand Dazhong Transportation (Group)'s profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥133m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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. Dazhong Transportation (Group) had a rather significant contribution from unusual items relative to its profit to December 2023. 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 Dazhong Transportation (Group).

Our Take On Dazhong Transportation (Group)'s Profit Performance

As we discussed above, we think the significant positive unusual item makes Dazhong Transportation (Group)'s earnings a poor guide to its underlying profitability. For this reason, we think that Dazhong Transportation (Group)'s statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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. If you want to do dive deeper into Dazhong Transportation (Group), you'd also look into what risks it is currently facing. Our analysis shows 4 warning signs for Dazhong Transportation (Group) (1 is a bit unpleasant!) and we strongly recommend you look at these before investing.

This note has only looked at a single factor that sheds light on the nature of Dazhong Transportation (Group)'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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.