FAWER Automotive Parts Limited's (SZSE:000030) Profits Appear To Have Quality Issues

The recent earnings posted by FAWER Automotive Parts Limited Company (SZSE:000030) were solid, but the stock didn't move as much as we expected. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

View our latest analysis for FAWER Automotive Parts Limited

The Impact Of Unusual Items On Profit

Importantly, our data indicates that FAWER Automotive Parts Limited's profit received a boost of CN¥234m in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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, after all, that's exactly what the accounting terminology implies. We can see that FAWER Automotive Parts Limited's positive unusual items were quite significant relative to its profit in the year to March 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 FAWER Automotive Parts Limited.

Our Take On FAWER Automotive Parts Limited's Profit Performance

As previously mentioned, FAWER Automotive Parts Limited'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 FAWER Automotive Parts Limited's underlying earnings power is lower than its statutory profit. The good news is that, its earnings per share increased by 6.7% in the 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. If you want to do dive deeper into FAWER Automotive Parts Limited, you'd also look into what risks it is currently facing. For example, FAWER Automotive Parts Limited has 3 warning signs (and 1 which is a bit unpleasant) we think you should know about.

This note has only looked at a single factor that sheds light on the nature of FAWER Automotive Parts Limited'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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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.