Hangzhou Advance Gearbox Group's (SHSE:601177) Weak Earnings May Only Reveal A Part Of The Whole Picture

A lackluster earnings announcement from Hangzhou Advance Gearbox Group Co., Ltd. (SHSE:601177) last week didn't sink the stock price. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

Check out our latest analysis for Hangzhou Advance Gearbox Group

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Hangzhou Advance Gearbox Group's profit received a boost of CN¥20m 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. 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. We can see that Hangzhou Advance Gearbox Group'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 Hangzhou Advance Gearbox Group.

Our Take On Hangzhou Advance Gearbox Group's Profit Performance

As we discussed above, we think the significant positive unusual item makes Hangzhou Advance Gearbox Group's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Hangzhou Advance Gearbox Group's underlying earnings power is lower than its statutory profit. Nonetheless, it's still worth noting that its earnings per share have grown at 51% over the last three years. 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. While it's very important to consider the profit and loss statement, you can also learn a lot about a company by looking at its balance sheet. We've done some analysis and you can see our take on Hangzhou Advance Gearbox Group's balance sheet by clicking here.

This note has only looked at a single factor that sheds light on the nature of Hangzhou Advance Gearbox Group'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. 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.