Xinling Electrical's (SZSE:301388) Sluggish Earnings Might Be Just The Beginning Of Its Problems

The market wasn't impressed with the soft earnings from Xinling Electrical CO., LTD. (SZSE:301388) recently. Our analysis has found some reasons to be concerned, beyond the weak headline numbers.

View our latest analysis for Xinling Electrical

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Xinling Electrical's profit received a boost of CN¥4.2m in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And that's as you'd expect, given these boosts are described as 'unusual'. Xinling Electrical had a rather significant contribution from unusual items relative to its profit to September 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Xinling Electrical.

Our Take On Xinling Electrical's Profit Performance

As we discussed above, we think the significant positive unusual item makes Xinling Electrical's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Xinling Electrical's underlying earnings power is lower than its statutory profit. In further bad news, its earnings per share decreased 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Be aware that Xinling Electrical is showing 5 warning signs in our investment analysis and 2 of those can't be ignored...

Today we've zoomed in on a single data point to better understand the nature of Xinling Electrical's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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. 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.