Why Shandong Humon Smelting's (SZSE:002237) Earnings Are Better Than They Seem

Investors signalled that they were pleased with Shandong Humon Smelting Co., Ltd.'s (SZSE:002237) most recent earnings report. Looking deeper at the numbers, we found several encouraging factors beyond the headline profit numbers.

Check out our latest analysis for Shandong Humon Smelting

How Do Unusual Items Influence Profit?

For anyone who wants to understand Shandong Humon Smelting's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥212m 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 that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Shandong Humon Smelting to produce a higher profit next year, all else being equal.

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 Shandong Humon Smelting's Profit Performance

Unusual items (expenses) detracted from Shandong Humon Smelting's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Shandong Humon Smelting's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at 14% per year over the last three years. 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 if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. While conducting our analysis, we found that Shandong Humon Smelting has 3 warning signs and it would be unwise to ignore these.

Today we've zoomed in on a single data point to better understand the nature of Shandong Humon Smelting's profit. But there are plenty of other ways to inform your opinion of a company. 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.