Changzhou Zhongying Science & Technology's (SZSE:300936) Anemic Earnings Might Be Worse Than You Think

Last week's earnings announcement from Changzhou Zhongying Science & Technology Co., Ltd (SZSE:300936) was disappointing to investors, with a sluggish profit figure. We did some further digging and think they have a few more reasons to be concerned beyond the statutory profit.

View our latest analysis for Changzhou Zhongying Science & Technology

The Impact Of Unusual Items On Profit

For anyone who wants to understand Changzhou Zhongying Science & Technology's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥3.4m 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 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, 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 Changzhou Zhongying Science & Technology.

Our Take On Changzhou Zhongying Science & Technology's Profit Performance

Arguably, Changzhou Zhongying Science & Technology's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Changzhou Zhongying Science & Technology's true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over the last twelve months. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Be aware that Changzhou Zhongying Science & Technology is showing 3 warning signs in our investment analysis and 2 of those are a bit unpleasant...

Today we've zoomed in on a single data point to better understand the nature of Changzhou Zhongying Science & Technology'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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.