Dianguang Explosion-proof TechnologyLtd's (SZSE:002730) Shareholders May Want To Dig Deeper Than Statutory Profit

Dianguang Explosion-proof Technology Co.,Ltd.'s (SZSE:002730) robust recent earnings didn't do much to move the stock. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

See our latest analysis for Dianguang Explosion-proof TechnologyLtd

The Impact Of Unusual Items On Profit

For anyone who wants to understand Dianguang Explosion-proof TechnologyLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥10m worth of 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. Which is hardly surprising, given the name. If Dianguang Explosion-proof TechnologyLtd 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 Dianguang Explosion-proof TechnologyLtd.

Our Take On Dianguang Explosion-proof TechnologyLtd's Profit Performance

We'd posit that Dianguang Explosion-proof TechnologyLtd'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 Dianguang Explosion-proof TechnologyLtd'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. 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. So while earnings quality is important, it's equally important to consider the risks facing Dianguang Explosion-proof TechnologyLtd at this point in time. In terms of investment risks, we've identified 1 warning sign with Dianguang Explosion-proof TechnologyLtd, and understanding this should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Dianguang Explosion-proof TechnologyLtd'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 that insiders are buying.

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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.