There May Be Some Bright Spots In Lutian Machinery's (SHSE:605259) Earnings

The market for Lutian Machinery Co., Ltd.'s (SHSE:605259) shares didn't move much after it posted weak earnings recently. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

See our latest analysis for Lutian Machinery

How Do Unusual Items Influence Profit?

For anyone who wants to understand Lutian Machinery's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥28m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Lutian Machinery to produce a higher profit next year, all else being equal.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Lutian Machinery.

Our Take On Lutian Machinery's Profit Performance

Unusual items (expenses) detracted from Lutian Machinery's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Lutian Machinery's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at 7.3% per year 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Lutian Machinery.

This note has only looked at a single factor that sheds light on the nature of Lutian Machinery'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.