Shanghai NAR Industrial's (SZSE:002825) Soft Earnings Are Actually Better Than They Appear

The market was pleased with the recent earnings report from Shanghai NAR Industrial Co., Ltd (SZSE:002825), despite the profit numbers being soft. We think that investors might be looking at some positive factors beyond the earnings numbers.

Check out our latest analysis for Shanghai NAR Industrial

The Impact Of Unusual Items On Profit

For anyone who wants to understand Shanghai NAR Industrial's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥23m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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 Shanghai NAR Industrial 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 Shanghai NAR Industrial.

Our Take On Shanghai NAR Industrial's Profit Performance

Because unusual items detracted from Shanghai NAR Industrial's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Shanghai NAR Industrial's earnings potential is at least as good as it seems, and maybe even better! On the other hand, its EPS actually shrunk in 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. When we did our research, we found 2 warning signs for Shanghai NAR Industrial (1 is a bit unpleasant!) that we believe deserve your full attention.

Today we've zoomed in on a single data point to better understand the nature of Shanghai NAR Industrial'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.