NanJi E-Commerce Co., LTD's (SZSE:002127) robust earnings report didn't manage to move the market for its stock. We did some digging, and we found some concerning factors in the details.

How Do Unusual Items Influence Profit?

To properly understand NanJi E-Commerce's profit results, we need to consider the CN¥30m gain attributed to 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. 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, after all, that's exactly what the accounting terminology implies. We can see that NanJi E-Commerce's positive unusual items were quite significant relative to its profit in the year to June 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 NanJi E-Commerce.

Our Take On NanJi E-Commerce's Profit Performance

As we discussed above, we think the significant positive unusual item makes NanJi E-Commerce's earnings a poor guide to its underlying profitability. For this reason, we think that NanJi E-Commerce'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. 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. If you want to do dive deeper into NanJi E-Commerce, you'd also look into what risks it is currently facing. Our analysis shows 3 warning signs for NanJi E-Commerce (1 doesn't sit too well with us!) and we strongly recommend you look at these bad boys before investing.

This note has only looked at a single factor that sheds light on the nature of NanJi E-Commerce'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. 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.