Jiangsu Rutong Petro-Machinery's (SHSE:603036) Profits May Not Reveal Underlying Issues

The market for Jiangsu Rutong Petro-Machinery Co., Ltd's (SHSE:603036) stock was strong after it released a healthy earnings report last week. While the profit numbers were good, our analysis has found some concerning factors that shareholders should be aware of.

Check out our latest analysis for Jiangsu Rutong Petro-Machinery

How Do Unusual Items Influence Profit?

For anyone who wants to understand Jiangsu Rutong Petro-Machinery's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥6.3m 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. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. If Jiangsu Rutong Petro-Machinery 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 Jiangsu Rutong Petro-Machinery.

Our Take On Jiangsu Rutong Petro-Machinery's Profit Performance

Arguably, Jiangsu Rutong Petro-Machinery's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Jiangsu Rutong Petro-Machinery's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 44% per annum growth in EPS for the last three. 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. So while earnings quality is important, it's equally important to consider the risks facing Jiangsu Rutong Petro-Machinery at this point in time. In terms of investment risks, we've identified 1 warning sign with Jiangsu Rutong Petro-Machinery, and understanding this should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Jiangsu Rutong Petro-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. 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 that insiders are buying 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.