There May Be Some Bright Spots In Hangzhou Zhongya Machinery's (SZSE:300512) Earnings

The market for Hangzhou Zhongya Machinery Co., Ltd.'s (SZSE:300512) shares didn't move much after it posted weak earnings recently. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

Check out our latest analysis for Hangzhou Zhongya Machinery

The Impact Of Unusual Items On Profit

To properly understand Hangzhou Zhongya Machinery's profit results, we need to consider the CN¥39m expense attributed 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, after all, that's exactly what the accounting terminology implies. If Hangzhou Zhongya Machinery 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 Hangzhou Zhongya Machinery.

Our Take On Hangzhou Zhongya Machinery's Profit Performance

Unusual items (expenses) detracted from Hangzhou Zhongya Machinery's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Hangzhou Zhongya Machinery's statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in the last twelve months. 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 while earnings quality is important, it's equally important to consider the risks facing Hangzhou Zhongya Machinery at this point in time. Our analysis shows 5 warning signs for Hangzhou Zhongya Machinery (2 are a bit concerning!) and we strongly recommend you look at them before investing.

This note has only looked at a single factor that sheds light on the nature of Hangzhou Zhongya 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.