Some Investors May Be Willing To Look Past Nanxing Machinery's (SZSE:002757) Soft Earnings

Nanxing Machinery Co., Ltd.'s (SZSE:002757) earnings announcement last week didn't impress shareholders. Despite the soft profit numbers, our analysis has optimistic about the overall quality of the income statement.

Check out our latest analysis for Nanxing Machinery

The Impact Of Unusual Items On Profit

For anyone who wants to understand Nanxing Machinery's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥107m due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Nanxing 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 Nanxing Machinery.

Our Take On Nanxing Machinery's Profit Performance

Because unusual items detracted from Nanxing Machinery's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Nanxing Machinery's earnings potential is at least as good as it seems, and maybe even better! Unfortunately, though, its earnings per share actually fell back over the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Case in point: We've spotted 4 warning signs for Nanxing Machinery you should be mindful of and 1 of them can't be ignored.

This note has only looked at a single factor that sheds light on the nature of Nanxing Machinery's profit. But there are plenty of other ways to inform your opinion of a company. 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.