Shareholders appeared unconcerned with Sichuan Goldstone Asia Pharmaceutical Inc.'s (SZSE:300434) lackluster earnings report last week. We did some digging, and we believe the earnings are stronger than they seem.

The Impact Of Unusual Items On Profit

To properly understand Sichuan Goldstone Asia Pharmaceutical's profit results, we need to consider the CN¥74m expense attributed to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. Sichuan Goldstone Asia Pharmaceutical took a rather significant hit from unusual items in the year to June 2024. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Sichuan Goldstone Asia Pharmaceutical.

Our Take On Sichuan Goldstone Asia Pharmaceutical's Profit Performance

As we discussed above, we think the significant unusual expense will make Sichuan Goldstone Asia Pharmaceutical's statutory profit lower than it would otherwise have been. Because of this, we think Sichuan Goldstone Asia Pharmaceutical's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! Unfortunately, though, its earnings per share actually fell back over 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Be aware that Sichuan Goldstone Asia Pharmaceutical is showing 3 warning signs in our investment analysis and 1 of those can't be ignored...

Today we've zoomed in on a single data point to better understand the nature of Sichuan Goldstone Asia Pharmaceutical'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. 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 with significant insider holdings 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.