Zhuhai Huajin Capital's (SZSE:000532) Shareholders Have More To Worry About Than Only Soft Earnings

Zhuhai Huajin Capital Co., Ltd.'s (SZSE:000532) recent weak earnings report didn't cause a big stock movement. We think that investors are worried about some weaknesses underlying the earnings.

Check out our latest analysis for Zhuhai Huajin Capital

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Zhuhai Huajin Capital's profit received a boost of CN¥6.1m in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. 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 Zhuhai Huajin Capital.

Our Take On Zhuhai Huajin Capital's Profit Performance

We'd posit that Zhuhai Huajin Capital's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Zhuhai Huajin Capital's statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the last year. 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 while earnings quality is important, it's equally important to consider the risks facing Zhuhai Huajin Capital at this point in time. While conducting our analysis, we found that Zhuhai Huajin Capital has 1 warning sign and it would be unwise to ignore this.

This note has only looked at a single factor that sheds light on the nature of Zhuhai Huajin Capital's profit. 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.