Should You Use China Shineway Pharmaceutical Group's (HKG:2877) Statutory Earnings To Analyse It?

Broadly speaking, profitable businesses are less risky than unprofitable ones. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. This article will consider whether China Shineway Pharmaceutical Group's (HKG:2877) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months China Shineway Pharmaceutical Group made a profit of CN¥469.2m on revenue of CN¥2.53b. As you can see in the chart below, its profit has declined over the last three years, even though its revenue has increased.

View our latest analysis for China Shineway Pharmaceutical Group

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. This article will discuss how unusual items have impacted China Shineway Pharmaceutical Group's most recent profit results. 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.

The Impact Of Unusual Items On Profit

To properly understand China Shineway Pharmaceutical Group's profit results, we need to consider the CN¥45m expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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. Assuming those unusual expenses don't come up again, we'd therefore expect China Shineway Pharmaceutical Group to produce a higher profit next year, all else being equal.

Our Take On China Shineway Pharmaceutical Group's Profit Performance

Because unusual items detracted from China Shineway Pharmaceutical Group's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that China Shineway Pharmaceutical Group's statutory profit actually understates its earnings potential! And we are pleased to note that EPS is at least heading in the right direction over the last three years. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you'd like to know more about China Shineway Pharmaceutical Group as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 1 warning sign for China Shineway Pharmaceutical Group you should know about.

Today we've zoomed in on a single data point to better understand the nature of China Shineway Pharmaceutical Group's profit. 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. 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. 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.
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