We Think You Can Look Beyond Shenzhen Etmade Automatic Equipment's (SZSE:300812) Lackluster Earnings

Shenzhen Etmade Automatic Equipment Co., Ltd.'s (SZSE:300812) recent weak earnings report didn't cause a big stock movement. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

Check out our latest analysis for Shenzhen Etmade Automatic Equipment

How Do Unusual Items Influence Profit?

For anyone who wants to understand Shenzhen Etmade Automatic Equipment's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥11m due 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. Shenzhen Etmade Automatic Equipment took a rather significant hit from unusual items in the year to March 2024. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Shenzhen Etmade Automatic Equipment.

An Unusual Tax Situation

Just as we noted the unusual items, we must inform you that Shenzhen Etmade Automatic Equipment received a tax benefit which contributed CN¥15m to the bottom line. This is of course a bit out of the ordinary, given it is more common for companies to be paying tax than receiving tax benefits! We're sure the company was pleased with its tax benefit. However, the devil in the detail is that these kind of benefits only impact in the year they are booked, and are often one-off in nature. In the likely event the tax benefit is not repeated, we'd expect to see its statutory profit levels drop, at least in the absence of strong growth. While we think it's good that the company has booked a tax benefit, it does mean that there's every chance the statutory profit will come in a lot higher than it would be if the income was adjusted for one-off factors.

Our Take On Shenzhen Etmade Automatic Equipment's Profit Performance

In the last year Shenzhen Etmade Automatic Equipment received a tax benefit, which boosted its profit in a way that might not be much more sustainable than turning prime farmland into gas fields. But on the other hand, it also saw an unusual item depress its profit. Based on these factors, it's hard to tell if Shenzhen Etmade Automatic Equipment's profits are a reasonable reflection of its underlying profitability. If you want to do dive deeper into Shenzhen Etmade Automatic Equipment, you'd also look into what risks it is currently facing. To that end, you should learn about the 4 warning signs we've spotted with Shenzhen Etmade Automatic Equipment (including 1 which is a bit concerning).

Our examination of Shenzhen Etmade Automatic Equipment has focussed on certain factors that can make its earnings look better than they are. 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. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying to be useful.

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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.