Jiangxi Huawu BrakeLtd's (SZSE:300095) Conservative Accounting Might Explain Soft Earnings

Shareholders appeared unconcerned with Jiangxi Huawu Brake Co.,Ltd.'s (SZSE:300095) lackluster earnings report last week. We did some digging, and we believe the earnings are stronger than they seem.

See our latest analysis for Jiangxi Huawu BrakeLtd

How Do Unusual Items Influence Profit?

To properly understand Jiangxi Huawu BrakeLtd's profit results, we need to consider the CN¥28m expense attributed 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. If Jiangxi Huawu BrakeLtd 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 Jiangxi Huawu BrakeLtd.

Our Take On Jiangxi Huawu BrakeLtd's Profit Performance

Unusual items (expenses) detracted from Jiangxi Huawu BrakeLtd's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Jiangxi Huawu BrakeLtd's statutory profit actually understates its earnings potential! 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. If you'd like to know more about Jiangxi Huawu BrakeLtd as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 3 warning signs for Jiangxi Huawu BrakeLtd you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Jiangxi Huawu BrakeLtd'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. 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 that insiders are buying 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.