Shang Gong Group Co., Ltd.'s (SHSE:600843) stock was strong after they recently reported robust earnings. However, our analysis suggests that shareholders may be missing some factors that indicate the earnings result was not as good as it looked.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Shang Gong Group's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥110m 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. And that's as you'd expect, given these boosts are described as 'unusual'. We can see that Shang Gong Group's positive unusual items were quite significant relative to its profit in the year to December 2023. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Shang Gong Group.

Our Take On Shang Gong Group's Profit Performance

As we discussed above, we think the significant positive unusual item makes Shang Gong Group's earnings a poor guide to its underlying profitability. For this reason, we think that Shang Gong Group's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. But at least holders can take some solace from the 23% EPS growth in the last year. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you'd like to know more about Shang Gong Group as a business, it's important to be aware of any risks it's facing. For instance, we've identified 4 warning signs for Shang Gong Group (2 shouldn't be ignored) you should be familiar with.

This note has only looked at a single factor that sheds light on the nature of Shang Gong Group'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.

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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.