Fujian Zhangzhou Development Co.,LTD.'s (SZSE:000753) strong earnings report was rewarded with a positive stock price move. We have done some analysis, and we found several positive factors beyond the profit numbers.
The Impact Of Unusual Items On Profit
Importantly, our data indicates that Fujian Zhangzhou DevelopmentLTD's profit was reduced by CN¥43m, due to unusual items, over the last year. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. In the twelve months to September 2024, Fujian Zhangzhou DevelopmentLTD had a big unusual items expense. 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 Fujian Zhangzhou DevelopmentLTD.
Our Take On Fujian Zhangzhou DevelopmentLTD's Profit Performance
As we discussed above, we think the significant unusual expense will make Fujian Zhangzhou DevelopmentLTD's statutory profit lower than it would otherwise have been. Based on this observation, we consider it possible that Fujian Zhangzhou DevelopmentLTD's statutory profit actually understates its earnings potential! And the EPS is up 78% over the last twelve months. 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. Our analysis shows 3 warning signs for Fujian Zhangzhou DevelopmentLTD (2 are potentially serious!) and we strongly recommend you look at them before investing.
This note has only looked at a single factor that sheds light on the nature of Fujian Zhangzhou DevelopmentLTD'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.