Weak Statutory Earnings May Not Tell The Whole Story For HUAYU Automotive Systems (SHSE:600741)

Investors were disappointed by HUAYU Automotive Systems Company Limited's (SHSE:600741 ) latest earnings release. We did some analysis, and found that there are some reasons to be cautious about the headline numbers.

View our latest analysis for HUAYU Automotive Systems

How Do Unusual Items Influence Profit?

Importantly, our data indicates that HUAYU Automotive Systems' profit received a boost of CN¥708m in unusual items, over the last year. 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, after all, that's exactly what the accounting terminology implies. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On HUAYU Automotive Systems' Profit Performance

We'd posit that HUAYU Automotive Systems' statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that HUAYU Automotive Systems' statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the last year. 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. So while earnings quality is important, it's equally important to consider the risks facing HUAYU Automotive Systems at this point in time. Case in point: We've spotted 1 warning sign for HUAYU Automotive Systems you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of HUAYU Automotive Systems' profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.