China Shenshan Orchard Holdings' (SGX:BKV) Profits Appear To Have Quality Issues

The market for China Shenshan Orchard Holdings Co. Ltd.'s (SGX:BKV) stock was strong after it released a healthy earnings report last week. While the profit numbers were good, our analysis has found some concerning factors that shareholders should be aware of.

See our latest analysis for China Shenshan Orchard Holdings

The Impact Of Unusual Items On Profit

For anyone who wants to understand China Shenshan Orchard Holdings' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥7.0m worth of unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of China Shenshan Orchard Holdings.

Our Take On China Shenshan Orchard Holdings' Profit Performance

We'd posit that China Shenshan Orchard Holdings' statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that China Shenshan Orchard Holdings' true underlying earnings power is actually less than its statutory profit. On the bright side, the company showed enough improvement to book a profit this year, after losing money 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 China Shenshan Orchard Holdings at this point in time. While conducting our analysis, we found that China Shenshan Orchard Holdings has 3 warning signs and it would be unwise to ignore them.

This note has only looked at a single factor that sheds light on the nature of China Shenshan Orchard Holdings' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.