Last week's earnings announcement from Shijiazhuang Yiling Pharmaceutical Co., Ltd. (SZSE:002603) was disappointing to investors, with a sluggish profit figure. We did some analysis, and found that there are some reasons to be cautious about the headline numbers.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Shijiazhuang Yiling Pharmaceutical's profit received a boost of CN¥94m 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 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. Shijiazhuang Yiling Pharmaceutical had a rather significant contribution from unusual items relative to its profit 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.

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 Shijiazhuang Yiling Pharmaceutical's Profit Performance

As we discussed above, we think the significant positive unusual item makes Shijiazhuang Yiling Pharmaceutical's earnings a poor guide to its underlying profitability. For this reason, we think that Shijiazhuang Yiling Pharmaceutical's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. Sadly, its EPS was down over the last twelve months. 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 Shijiazhuang Yiling Pharmaceutical at this point in time. When we did our research, we found 3 warning signs for Shijiazhuang Yiling Pharmaceutical (1 is potentially serious!) that we believe deserve your full attention.

Today we've zoomed in on a single data point to better understand the nature of Shijiazhuang Yiling Pharmaceutical'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. 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.