We Like Wuhan Zhongyuan Huadian Science & TechnologyLtd's (SZSE:300018) Earnings For More Than Just Statutory Profit

The market seemed underwhelmed by the solid earnings posted by Wuhan Zhongyuan Huadian Science & Technology Co.,Ltd. (SZSE:300018) recently. Along with the solid headline numbers, we think that investors have some reasons for optimism.

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The Impact Of Unusual Items On Profit

For anyone who wants to understand Wuhan Zhongyuan Huadian Science & TechnologyLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥16m 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 that's hardly a surprise given these line items are considered unusual. If Wuhan Zhongyuan Huadian Science & TechnologyLtd doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Wuhan Zhongyuan Huadian Science & TechnologyLtd.

Our Take On Wuhan Zhongyuan Huadian Science & TechnologyLtd's Profit Performance

Because unusual items detracted from Wuhan Zhongyuan Huadian Science & TechnologyLtd'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 Wuhan Zhongyuan Huadian Science & TechnologyLtd's statutory profit actually understates its earnings potential! And on top of that, its earnings per share increased by 23% in 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. While conducting our analysis, we found that Wuhan Zhongyuan Huadian Science & TechnologyLtd has 1 warning sign and it would be unwise to ignore this.

This note has only looked at a single factor that sheds light on the nature of Wuhan Zhongyuan Huadian Science & TechnologyLtd'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. 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 with significant insider holdings 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.