Weak Statutory Earnings May Not Tell The Whole Story For Zhe Kuang Heavy IndustryLtd (SZSE:300837)

Zhe Kuang Heavy Industry Co.,Ltd.'s (SZSE:300837) recent weak earnings report didn't cause a big stock movement. However, we believe that investors should be aware of some underlying factors which may be of concern.

Check out our latest analysis for Zhe Kuang Heavy IndustryLtd

How Do Unusual Items Influence Profit?

To properly understand Zhe Kuang Heavy IndustryLtd's profit results, we need to consider the CN¥5.8m gain attributed to 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 crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And, after all, that's exactly what the accounting terminology implies. If Zhe Kuang Heavy IndustryLtd doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Zhe Kuang Heavy IndustryLtd.

Our Take On Zhe Kuang Heavy IndustryLtd's Profit Performance

Arguably, Zhe Kuang Heavy IndustryLtd's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Zhe Kuang Heavy IndustryLtd's statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. For example - Zhe Kuang Heavy IndustryLtd has 2 warning signs we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Zhe Kuang Heavy IndustryLtd'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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.