Weak Statutory Earnings May Not Tell The Whole Story For Chongqing Machinery & Electric (HKG:2722)

Investors were disappointed by Chongqing Machinery & Electric Co., Ltd.'s (HKG:2722 ) latest earnings release. We did some further digging and think they have a few more reasons to be concerned beyond the statutory profit.

Check out our latest analysis for Chongqing Machinery & Electric

The Impact Of Unusual Items On Profit

For anyone who wants to understand Chongqing Machinery & Electric's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥181m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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, after all, that's exactly what the accounting terminology implies. Chongqing Machinery & Electric had a rather significant contribution from unusual items relative to its profit 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 Chongqing Machinery & Electric.

Our Take On Chongqing Machinery & Electric's Profit Performance

As we discussed above, we think the significant positive unusual item makes Chongqing Machinery & Electric's earnings a poor guide to its underlying profitability. For this reason, we think that Chongqing Machinery & Electric'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 60% per annum growth in EPS for the last three. 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 Chongqing Machinery & Electric, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 1 warning sign for Chongqing Machinery & Electric you should know about.

Today we've zoomed in on a single data point to better understand the nature of Chongqing Machinery & Electric'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 that insiders are buying 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.