Shijiazhuang Kelin Electric's (SHSE:603050) Shareholders Have More To Worry About Than Only Soft Earnings

Investors were disappointed by Shijiazhuang Kelin Electric Co., Ltd.'s (SHSE:603050 ) latest earnings release. Our analysis has found some reasons to be concerned, beyond the weak headline numbers.

View our latest analysis for Shijiazhuang Kelin Electric

How Do Unusual Items Influence Profit?

To properly understand Shijiazhuang Kelin Electric's profit results, we need to consider the CN¥25m gain attributed to unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And, after all, that's exactly what the accounting terminology implies. If Shijiazhuang Kelin Electric 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 Shijiazhuang Kelin Electric.

Our Take On Shijiazhuang Kelin Electric's Profit Performance

We'd posit that Shijiazhuang Kelin Electric's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Shijiazhuang Kelin Electric's statutory profits are better than its underlying earnings power. But on the bright side, its earnings per share have grown at an extremely impressive rate 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. For example - Shijiazhuang Kelin Electric has 2 warning signs we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Shijiazhuang Kelin Electric'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.