We Think You Should Be Aware Of Some Concerning Factors In Shenzhen Huakong Seg's (SZSE:000068) Earnings

Shenzhen Huakong Seg Co., Ltd.'s (SZSE:000068) robust recent earnings didn't do much to move the stock. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

View our latest analysis for Shenzhen Huakong Seg

The Impact Of Unusual Items On Profit

For anyone who wants to understand Shenzhen Huakong Seg's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥459m worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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. We can see that Shenzhen Huakong Seg'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 Shenzhen Huakong Seg.

Our Take On Shenzhen Huakong Seg's Profit Performance

As we discussed above, we think the significant positive unusual item makes Shenzhen Huakong Seg's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Shenzhen Huakong Seg's underlying earnings power is lower than its statutory profit. The good news is that it earned a profit in the last twelve months, despite its previous loss. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. To that end, you should learn about the 3 warning signs we've spotted with Shenzhen Huakong Seg (including 1 which is significant).

This note has only looked at a single factor that sheds light on the nature of Shenzhen Huakong Seg'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 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.