Shenzhen Zhilai Sci and Tech (SZSE:300771) Posted Healthy Earnings But There Are Some Other Factors To Be Aware Of

Investors were disappointed with Shenzhen Zhilai Sci and Tech Co., Ltd.'s (SZSE:300771) earnings, despite the strong profit numbers. Our analysis uncovered some concerning factors that we believe the market might be paying attention to.

Check out our latest analysis for Shenzhen Zhilai Sci and Tech

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Shenzhen Zhilai Sci and Tech's profit received a boost of CN¥20m in unusual items, over the last year. 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 crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And that's as you'd expect, given these boosts are described as 'unusual'. Shenzhen Zhilai Sci and Tech had a rather significant contribution from unusual items relative to its profit to September 2024. 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 Zhilai Sci and Tech.

Our Take On Shenzhen Zhilai Sci and Tech's Profit Performance

As we discussed above, we think the significant positive unusual item makes Shenzhen Zhilai Sci and Tech's earnings a poor guide to its underlying profitability. For this reason, we think that Shenzhen Zhilai Sci and Tech's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. On the bright side, the company showed enough improvement to book a profit this year, after losing money 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 Shenzhen Zhilai Sci and Tech as a business, it's important to be aware of any risks it's facing. To that end, you should learn about the 3 warning signs we've spotted with Shenzhen Zhilai Sci and Tech (including 1 which doesn't sit too well with us).

Today we've zoomed in on a single data point to better understand the nature of Shenzhen Zhilai Sci and Tech'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 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.