Xiangtan Electric Manufacturing's (SHSE:600416) Shareholders Have More To Worry About Than Only Soft Earnings

A lackluster earnings announcement from Xiangtan Electric Manufacturing Co. Ltd. (SHSE:600416) last week didn't sink the stock price. However, we believe that investors should be aware of some underlying factors which may be of concern.

Check out our latest analysis for Xiangtan Electric Manufacturing

How Do Unusual Items Influence Profit?

For anyone who wants to understand Xiangtan Electric Manufacturing's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥22m worth of unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Xiangtan Electric Manufacturing.

Our Take On Xiangtan Electric Manufacturing's Profit Performance

Arguably, Xiangtan Electric Manufacturing's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Xiangtan Electric Manufacturing's statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. Just as investors must consider earnings, it is also important to take into account the strength of a company's balance sheet. We've done some analysis and you can see our take on Xiangtan Electric Manufacturing's balance sheet by clicking here.

This note has only looked at a single factor that sheds light on the nature of Xiangtan Electric Manufacturing'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 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.