Investors Shouldn't Be Too Comfortable With Zhejiang Liming Intelligent ManufacturingLtd's (SHSE:603048) Earnings

Last week's profit announcement from Zhejiang Liming Intelligent Manufacturing Co.,Ltd. (SHSE:603048) was underwhelming for investors, despite headline numbers being robust. We did some digging and found some worrying underlying problems.

See our latest analysis for Zhejiang Liming Intelligent ManufacturingLtd

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Zhejiang Liming Intelligent ManufacturingLtd's profit received a boost of CN¥14m 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. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And that's as you'd expect, given these boosts are described as 'unusual'. Zhejiang Liming Intelligent ManufacturingLtd had a rather significant contribution from unusual items relative to its profit to September 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Zhejiang Liming Intelligent ManufacturingLtd.

Our Take On Zhejiang Liming Intelligent ManufacturingLtd's Profit Performance

As previously mentioned, Zhejiang Liming Intelligent ManufacturingLtd's large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. As a result, we think it may well be the case that Zhejiang Liming Intelligent ManufacturingLtd's underlying earnings power is lower than its statutory profit. But the happy news is that, while acknowledging we have to look beyond the statutory numbers, those numbers are still improving, with EPS growing at a very high rate over the last year. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Every company has risks, and we've spotted 3 warning signs for Zhejiang Liming Intelligent ManufacturingLtd (of which 2 are significant!) you should know about.

This note has only looked at a single factor that sheds light on the nature of Zhejiang Liming Intelligent ManufacturingLtd's profit. But there are plenty of other ways to inform your opinion of a company. 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.