Statutory Profit Doesn't Reflect How Good Zhejiang Tiancheng Controls' (SHSE:603085) Earnings Are

Zhejiang Tiancheng Controls Co., Ltd. (SHSE:603085) just reported healthy earnings but the stock price didn't move much. Investors are probably missing some underlying factors which are encouraging for the future of the company.

Check out our latest analysis for Zhejiang Tiancheng Controls

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Zhejiang Tiancheng Controls' profit was reduced by CN¥1.3m, due to unusual items, over the last year. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Zhejiang Tiancheng Controls to produce a higher profit next year, all else being equal.

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

Our Take On Zhejiang Tiancheng Controls' Profit Performance

Unusual items (expenses) detracted from Zhejiang Tiancheng Controls' earnings over the last year, but we might see an improvement next year. Because of this, we think Zhejiang Tiancheng Controls' earnings potential is at least as good as it seems, and maybe even better! And one can definitely find a positive in the fact that it made a profit this year, despite losing money 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. So while earnings quality is important, it's equally important to consider the risks facing Zhejiang Tiancheng Controls at this point in time. While conducting our analysis, we found that Zhejiang Tiancheng Controls has 1 warning sign and it would be unwise to ignore it.

This note has only looked at a single factor that sheds light on the nature of Zhejiang Tiancheng Controls' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.