Despite Zhejiang Garden Biopharmaceutical Co.,Ltd.'s (SZSE:300401) recent earnings report having lackluster headline numbers, the market responded positively. While shareholders may be willing to overlook soft profit numbers, we believe that they should also be taking into account some other factors which may be cause for concern.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Zhejiang Garden BiopharmaceuticalLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥89m worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. Zhejiang Garden BiopharmaceuticalLtd had a rather significant contribution from unusual items relative to its profit to March 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 Zhejiang Garden BiopharmaceuticalLtd.

Our Take On Zhejiang Garden BiopharmaceuticalLtd's Profit Performance

As we discussed above, we think the significant positive unusual item makes Zhejiang Garden BiopharmaceuticalLtd's earnings a poor guide to its underlying profitability. For this reason, we think that Zhejiang Garden BiopharmaceuticalLtd's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. In further bad news, its earnings per share decreased 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For instance, we've identified 2 warning signs for Zhejiang Garden BiopharmaceuticalLtd (1 is a bit unpleasant) you should be familiar with.

This note has only looked at a single factor that sheds light on the nature of Zhejiang Garden BiopharmaceuticalLtd's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 that insiders are buying.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.