Shanxi Guoxin Energy Corporation Limited (SHSE:600617) just reported some strong earnings, and the market reacted accordingly with a healthy uplift in the share price. 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 Shanxi Guoxin Energy's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥231m 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'. Shanxi Guoxin Energy had a rather significant contribution from unusual items relative to its profit to March 2024. 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 Shanxi Guoxin Energy.
Our Take On Shanxi Guoxin Energy's Profit Performance
As we discussed above, we think the significant positive unusual item makes Shanxi Guoxin Energy's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Shanxi Guoxin Energy's underlying earnings power is lower than its statutory profit. The silver lining is that its EPS growth over the last year has been really wonderful, even if it's not a perfect measure. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you'd like to know more about Shanxi Guoxin Energy as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 3 warning signs for Shanxi Guoxin Energy (of which 1 is potentially serious!) you should know about.
This note has only looked at a single factor that sheds light on the nature of Shanxi Guoxin Energy'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.