Super-Dragon Engineering Plastics' (SZSE:301131) Conservative Accounting Might Explain Soft Earnings

Investors were disappointed with the weak earnings posted by Super-Dragon Engineering Plastics Co., Ltd (SZSE:301131 ). However, our analysis suggests that the soft headline numbers are getting counterbalanced by some positive underlying factors.

Check out our latest analysis for Super-Dragon Engineering Plastics

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Super-Dragon Engineering Plastics' profit was reduced by CN¥4.6m, due to unusual items, over the last year. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. 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 Super-Dragon Engineering Plastics to produce a higher profit next year, all else being equal.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Super-Dragon Engineering Plastics.

Our Take On Super-Dragon Engineering Plastics' Profit Performance

Because unusual items detracted from Super-Dragon Engineering Plastics' earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Super-Dragon Engineering Plastics' statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in the last twelve months. 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. Every company has risks, and we've spotted 4 warning signs for Super-Dragon Engineering Plastics (of which 2 make us uncomfortable!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of Super-Dragon Engineering Plastics' 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 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.