ShanXi C&Y Pharmaceutical Group Co.,LTD.'s (SZSE:300254) robust earnings report didn't manage to move the market for its stock. Our analysis suggests that shareholders have noticed something concerning in the numbers.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that ShanXi C&Y Pharmaceutical GroupLTD's profit received a boost of CN¥49m in unusual items, over the last year. 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 that's as you'd expect, given these boosts are described as 'unusual'. We can see that ShanXi C&Y Pharmaceutical GroupLTD's positive unusual items were quite significant relative to its profit in the year to September 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of ShanXi C&Y Pharmaceutical GroupLTD.

Our Take On ShanXi C&Y Pharmaceutical GroupLTD's Profit Performance

As we discussed above, we think the significant positive unusual item makes ShanXi C&Y Pharmaceutical GroupLTD's earnings a poor guide to its underlying profitability. For this reason, we think that ShanXi C&Y Pharmaceutical GroupLTD'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. 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. So while earnings quality is important, it's equally important to consider the risks facing ShanXi C&Y Pharmaceutical GroupLTD at this point in time. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of ShanXi C&Y Pharmaceutical GroupLTD.

Today we've zoomed in on a single data point to better understand the nature of ShanXi C&Y Pharmaceutical GroupLTD'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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.