Why Zhejiang Zhaofeng Mechanical and ElectronicLtd's (SZSE:300695) Earnings Are Better Than They Seem

Zhejiang Zhaofeng Mechanical and Electronic Co.,Ltd.'s (SZSE:300695) solid earnings announcement recently didn't do much to the stock price. Our analysis suggests that shareholders might be missing some positive underlying factors in the earnings report.

View our latest analysis for Zhejiang Zhaofeng Mechanical and ElectronicLtd

How Do Unusual Items Influence Profit?

To properly understand Zhejiang Zhaofeng Mechanical and ElectronicLtd's profit results, we need to consider the CN¥20m expense attributed to unusual items. 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 that's hardly a surprise given these line items are considered unusual. If Zhejiang Zhaofeng Mechanical and ElectronicLtd doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Zhejiang Zhaofeng Mechanical and ElectronicLtd.

Our Take On Zhejiang Zhaofeng Mechanical and ElectronicLtd's Profit Performance

Unusual items (expenses) detracted from Zhejiang Zhaofeng Mechanical and ElectronicLtd's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Zhejiang Zhaofeng Mechanical and ElectronicLtd's statutory profit actually understates its earnings potential! And the EPS is up 7.9% annually, over the last three years. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Case in point: We've spotted 1 warning sign for Zhejiang Zhaofeng Mechanical and ElectronicLtd you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Zhejiang Zhaofeng Mechanical and ElectronicLtd'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. 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.