Why Hangzhou Zhongya Machinery's (SZSE:300512) Shaky Earnings Are Just The Beginning Of Its Problems

The market wasn't impressed with the soft earnings from Hangzhou Zhongya Machinery Co., Ltd. (SZSE:300512) recently. We did some further digging and think they have a few more reasons to be concerned beyond the statutory profit.

Check out our latest analysis for Hangzhou Zhongya Machinery

How Do Unusual Items Influence Profit?

For anyone who wants to understand Hangzhou Zhongya Machinery's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥15m worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. We can see that Hangzhou Zhongya Machinery's positive unusual items were quite significant relative to its profit in the year to September 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

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

As previously mentioned, Hangzhou Zhongya Machinery's large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. As a result, we think it may well be the case that Hangzhou Zhongya Machinery's underlying earnings power is lower than its statutory profit. Sadly, its EPS was down over the last twelve months. 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. If you want to do dive deeper into Hangzhou Zhongya Machinery, you'd also look into what risks it is currently facing. To help with this, we've discovered 3 warning signs (1 makes us a bit uncomfortable!) that you ought to be aware of before buying any shares in Hangzhou Zhongya Machinery.

Today we've zoomed in on a single data point to better understand 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 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.