We Like Simcere Pharmaceutical Group's (HKG:2096) Earnings For More Than Just Statutory Profit

Simcere Pharmaceutical Group Limited (HKG:2096) announced a healthy earnings result recently, and the market rewarded it with a strong uplift in the stock price. Looking deeper at the numbers, we found several encouraging factors beyond the headline profit numbers.

Our free stock report includes 1 warning sign investors should be aware of before investing in Simcere Pharmaceutical Group. Read for free now.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Simcere Pharmaceutical Group's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥264m due to unusual items. 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, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Simcere Pharmaceutical Group 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.

Our Take On Simcere Pharmaceutical Group's Profit Performance

Unusual items (expenses) detracted from Simcere Pharmaceutical Group's earnings over the last year, but we might see an improvement next year. Because of this, we think Simcere Pharmaceutical Group's earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share increased by 6.5% 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example - Simcere Pharmaceutical Group has 1 warning sign we think you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Simcere Pharmaceutical 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 with significant insider holdings 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.