Why Zhejiang Dafeng Industry's (SHSE:603081) Shaky Earnings Are Just The Beginning Of Its Problems

The subdued market reaction suggests that Zhejiang Dafeng Industry Co., Ltd's (SHSE:603081) recent earnings didn't contain any surprises. However, we believe that investors should be aware of some underlying factors which may be of concern.

Check out our latest analysis for Zhejiang Dafeng Industry

The Impact Of Unusual Items On Profit

For anyone who wants to understand Zhejiang Dafeng Industry's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥16m worth of unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Zhejiang Dafeng Industry's Profit Performance

Arguably, Zhejiang Dafeng Industry's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Zhejiang Dafeng Industry's statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the last year. 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. So while earnings quality is important, it's equally important to consider the risks facing Zhejiang Dafeng Industry at this point in time. Every company has risks, and we've spotted 3 warning signs for Zhejiang Dafeng Industry (of which 1 is potentially serious!) you should know about.

This note has only looked at a single factor that sheds light on the nature of Zhejiang Dafeng Industry'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. 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.

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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.