Kinco Automation (Shanghai)Ltd's (SHSE:688160) Weak Earnings May Only Reveal A Part Of The Whole Picture

Last week's earnings announcement from Kinco Automation (Shanghai) Co.,Ltd (SHSE:688160) was disappointing to investors, with a sluggish profit figure. We did some analysis, and found that there are some reasons to be cautious about the headline numbers.

View our latest analysis for Kinco Automation (Shanghai)Ltd

How Do Unusual Items Influence Profit?

To properly understand Kinco Automation (Shanghai)Ltd's profit results, we need to consider the CN¥7.1m 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. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Kinco Automation (Shanghai)Ltd.

Our Take On Kinco Automation (Shanghai)Ltd's Profit Performance

We'd posit that Kinco Automation (Shanghai)Ltd's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Kinco Automation (Shanghai)Ltd's true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased in 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. If you'd like to know more about Kinco Automation (Shanghai)Ltd as a business, it's important to be aware of any risks it's facing. When we did our research, we found 4 warning signs for Kinco Automation (Shanghai)Ltd (1 is a bit concerning!) that we believe deserve your full attention.

Today we've zoomed in on a single data point to better understand the nature of Kinco Automation (Shanghai)Ltd'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. 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 with significant insider holdings 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.