Jiangyin Zhongnan Heavy IndustriesLtd's (SZSE:002445) Promising Earnings May Rest On Soft Foundations

Despite posting some strong earnings, the market for Jiangyin Zhongnan Heavy Industries Co.,Ltd's (SZSE:002445) stock hasn't moved much. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

View our latest analysis for Jiangyin Zhongnan Heavy IndustriesLtd

The Impact Of Unusual Items On Profit

To properly understand Jiangyin Zhongnan Heavy IndustriesLtd's profit results, we need to consider the CN¥39m gain attributed to 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. We can see that Jiangyin Zhongnan Heavy IndustriesLtd's positive unusual items were quite significant relative to its profit in the year to December 2023. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Jiangyin Zhongnan Heavy IndustriesLtd.

Our Take On Jiangyin Zhongnan Heavy IndustriesLtd's Profit Performance

As previously mentioned, Jiangyin Zhongnan Heavy IndustriesLtd's large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. As a result, we think it may well be the case that Jiangyin Zhongnan Heavy IndustriesLtd's underlying earnings power is lower than its statutory profit. But the happy news is that, while acknowledging we have to look beyond the statutory numbers, those numbers are still improving, with EPS growing at a very high rate over the last year. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Jiangyin Zhongnan Heavy IndustriesLtd.

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