Statutory Profit Doesn't Reflect How Good Guangzhou Tongda Auto Electric's (SHSE:603390) Earnings Are

Guangzhou Tongda Auto Electric Co., Ltd (SHSE:603390) recently posted some strong earnings, and the market responded positively. Our analysis found some more factors that we think are good for shareholders.

View our latest analysis for Guangzhou Tongda Auto Electric

The Impact Of Unusual Items On Profit

For anyone who wants to understand Guangzhou Tongda Auto Electric's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥9.4m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Guangzhou Tongda Auto Electric 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 Guangzhou Tongda Auto Electric.

Our Take On Guangzhou Tongda Auto Electric's Profit Performance

Because unusual items detracted from Guangzhou Tongda Auto Electric's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Guangzhou Tongda Auto Electric's statutory profit actually understates its earnings potential! And it's also positive that the company showed enough improvement to book a profit this year, after 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 Guangzhou Tongda Auto Electric at this point in time. When we did our research, we found 2 warning signs for Guangzhou Tongda Auto Electric (1 doesn't sit too well with us!) that we believe deserve your full attention.

Today we've zoomed in on a single data point to better understand the nature of Guangzhou Tongda Auto Electric's 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. 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.