Why Lanzhou LS Heavy Equipment's (SHSE:603169) Shaky Earnings Are Just The Beginning Of Its Problems

The subdued market reaction suggests that Lanzhou LS Heavy Equipment Co., Ltd's (SHSE:603169) recent earnings didn't contain any surprises. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

View our latest analysis for Lanzhou LS Heavy Equipment

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Lanzhou LS Heavy Equipment's profit received a boost of CN¥35m in unusual items, over the last year. 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. 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).

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Lanzhou LS Heavy Equipment's Profit Performance

We'd posit that Lanzhou LS Heavy Equipment'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 Lanzhou LS Heavy Equipment's statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you want to do dive deeper into Lanzhou LS Heavy Equipment, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 2 warning signs for Lanzhou LS Heavy Equipment (of which 1 can't be ignored!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of Lanzhou LS Heavy Equipment'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. 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.