Sanxiang Impression's (SZSE:000863) Conservative Accounting Might Explain Soft Earnings

Shareholders appeared unconcerned with Sanxiang Impression Co., Ltd.'s (SZSE:000863) lackluster earnings report last week. We did some digging, and we believe the earnings are stronger than they seem.

See our latest analysis for Sanxiang Impression

How Do Unusual Items Influence Profit?

To properly understand Sanxiang Impression's profit results, we need to consider the CN¥24m 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, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Sanxiang Impression 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 Sanxiang Impression.

Our Take On Sanxiang Impression's Profit Performance

Because unusual items detracted from Sanxiang Impression's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Sanxiang Impression's earnings potential is at least as good as it seems, and maybe even better! 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example - Sanxiang Impression has 2 warning signs we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Sanxiang Impression'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. 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.