We Think That There Are Issues Underlying SINOMACH HEAVY EQUIPMENT GROUPLTD's (SHSE:601399) Earnings

SINOMACH HEAVY EQUIPMENT GROUP CO.,LTD's (SHSE:601399) robust earnings report didn't manage to move the market for its stock. We did some digging, and we found some concerning factors in the details.

Check out our latest analysis for SINOMACH HEAVY EQUIPMENT GROUPLTD

How Do Unusual Items Influence Profit?

To properly understand SINOMACH HEAVY EQUIPMENT GROUPLTD's profit results, we need to consider the CN¥31m gain attributed to 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. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. If SINOMACH HEAVY EQUIPMENT GROUPLTD doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of SINOMACH HEAVY EQUIPMENT GROUPLTD.

Our Take On SINOMACH HEAVY EQUIPMENT GROUPLTD's Profit Performance

We'd posit that SINOMACH HEAVY EQUIPMENT GROUPLTD's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that SINOMACH HEAVY EQUIPMENT GROUPLTD's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 24% per annum growth in EPS for the last three. 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. Just as investors must consider earnings, it is also important to take into account the strength of a company's balance sheet. If you're interested we have a graphic representation of SINOMACH HEAVY EQUIPMENT GROUPLTD's balance sheet.

This note has only looked at a single factor that sheds light on the nature of SINOMACH HEAVY EQUIPMENT GROUPLTD'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 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.