Shanghai Chengtou HoldingLtd's (SHSE:600649) Conservative Accounting Might Explain Soft Earnings

Shareholders appeared unconcerned with Shanghai Chengtou Holding Co.,Ltd's (SHSE:600649) lackluster earnings report last week. We did some digging, and we believe the earnings are stronger than they seem.

See our latest analysis for Shanghai Chengtou HoldingLtd

How Do Unusual Items Influence Profit?

To properly understand Shanghai Chengtou HoldingLtd's profit results, we need to consider the CN¥218m expense attributed to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. 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. If Shanghai Chengtou HoldingLtd 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 Chengtou HoldingLtd.

Our Take On Shanghai Chengtou HoldingLtd's Profit Performance

Unusual items (expenses) detracted from Shanghai Chengtou HoldingLtd's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Shanghai Chengtou HoldingLtd's statutory profit actually understates its earnings potential! 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Our analysis shows 4 warning signs for Shanghai Chengtou HoldingLtd (2 are concerning!) and we strongly recommend you look at them before investing.

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