Shaanxi Zhongtian Rocket Technology's (SZSE:003009) Soft Earnings Don't Show The Whole Picture

Shaanxi Zhongtian Rocket Technology Co., Ltd's (SZSE:003009) earnings announcement last week didn't impress shareholders. While the headline numbers were soft, we believe that investors might be missing some encouraging factors.

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The Impact Of Unusual Items On Profit

For anyone who wants to understand Shaanxi Zhongtian Rocket Technology's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥5.2m 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 Shaanxi Zhongtian Rocket Technology to produce a higher profit next year, all else being equal.

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.

An Unusual Tax Situation

Having already discussed the impact of the unusual items, we should also note that Shaanxi Zhongtian Rocket Technology received a tax benefit of CN¥4.3m. This is of course a bit out of the ordinary, given it is more common for companies to be paying tax than receiving tax benefits! We're sure the company was pleased with its tax benefit. However, our data indicates that tax benefits can temporarily boost statutory profit in the year it is booked, but subsequently profit may fall back. In the likely event the tax benefit is not repeated, we'd expect to see its statutory profit levels drop, at least in the absence of strong growth. While we think it's good that the company has booked a tax benefit, it does mean that there's every chance the statutory profit will come in a lot higher than it would be if the income was adjusted for one-off factors.

Our Take On Shaanxi Zhongtian Rocket Technology's Profit Performance

In its last report Shaanxi Zhongtian Rocket Technology received a tax benefit which might make its profit look better than it really is on a underlying level. But on the other hand, it also saw an unusual item depress its profit. Based on these factors, it's hard to tell if Shaanxi Zhongtian Rocket Technology's profits are a reasonable reflection of its underlying profitability. If you want to do dive deeper into Shaanxi Zhongtian Rocket Technology, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 3 warning signs for Shaanxi Zhongtian Rocket Technology (of which 1 can't be ignored!) you should know about.

Our examination of Shaanxi Zhongtian Rocket Technology has focussed on certain factors that can make its earnings look better than they are. 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 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.