We Think You Can Look Beyond Nanxing Machinery's (SZSE:002757) Lackluster Earnings

The market for Nanxing Machinery Co., Ltd.'s (SZSE:002757) shares didn't move much after it posted weak earnings recently. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

See our latest analysis for Nanxing Machinery

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Nanxing Machinery's profit was reduced by CN¥141m, due to unusual items, over the last year. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. 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. Based on this observation, we consider it likely that Nanxing Machinery's statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over the last year. 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. 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 3 warning signs for Nanxing Machinery you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Nanxing Machinery's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. 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.