Essence Fastening Systems (Shanghai)'s (SZSE:301005) Problems Go Beyond Weak Profit

Last week's earnings announcement from Essence Fastening Systems (Shanghai) Co., Ltd. (SZSE:301005) was disappointing to investors, with a sluggish profit figure. We did some analysis, and found that there are some reasons to be cautious about the headline numbers.

View our latest analysis for Essence Fastening Systems (Shanghai)

The Impact Of Unusual Items On Profit

For anyone who wants to understand Essence Fastening Systems (Shanghai)'s profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥19m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. Essence Fastening Systems (Shanghai) had a rather significant contribution from unusual items relative to its profit to June 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Essence Fastening Systems (Shanghai).

Our Take On Essence Fastening Systems (Shanghai)'s Profit Performance

As we discussed above, we think the significant positive unusual item makes Essence Fastening Systems (Shanghai)'s earnings a poor guide to its underlying profitability. For this reason, we think that Essence Fastening Systems (Shanghai)'s statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. In further bad news, its earnings per share decreased in the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Case in point: We've spotted 4 warning signs for Essence Fastening Systems (Shanghai) you should be mindful of and 2 of these bad boys shouldn't be ignored.

This note has only looked at a single factor that sheds light on the nature of Essence Fastening Systems (Shanghai)'s profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 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.