Weak Statutory Earnings May Not Tell The Whole Story For Xiamen Sinic-Tek Intelligent Technology (SZSE:301568)

A lackluster earnings announcement from Xiamen Sinic-Tek Intelligent Technology Co., Ltd. (SZSE:301568) last week didn't sink the stock price. However, we believe that investors should be aware of some underlying factors which may be of concern.

See our latest analysis for Xiamen Sinic-Tek Intelligent Technology

The Power Of Non-Operating Revenue

Most companies divide classify their revenue as either 'operating revenue', which comes from normal operations, and other revenue, which could include government grants, for example. Where possible, we prefer rely on operating revenue to get a better understanding of how the business is functioning. Importantly, the non-operating revenue often comes without associated ongoing costs, so it can boost profit by letting it fall straight to the bottom line, making the operating business seem better than it really is. It's worth noting that Xiamen Sinic-Tek Intelligent Technology saw a big increase in non-operating revenue over the last year. In fact, our data indicates that non-operating revenue increased from CN¥15.5m to CN¥28.1m. The high levels of non-operating revenue are problematic because if (and when) they do not repeat, then overall revenue (and profitability) of the firm will fall. In order to better understand a company's profit result, it can sometimes help to consider whether the result would be very different without a sudden increase in non-operating revenue.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Xiamen Sinic-Tek Intelligent Technology.

Our Take On Xiamen Sinic-Tek Intelligent Technology's Profit Performance

As discussed above, Xiamen Sinic-Tek Intelligent Technology's sharp increase in non-operating revenue boosted its profit over the last year, and if that non-operating revenue is not repeated, then the trailing twelve months profit probably isn't as good as it seems. Because of this, we think that it may be that Xiamen Sinic-Tek Intelligent Technology's statutory profits are better than its underlying earnings power. 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 Xiamen Sinic-Tek Intelligent Technology as a business, it's important to be aware of any risks it's facing. To that end, you should learn about the 2 warning signs we've spotted with Xiamen Sinic-Tek Intelligent Technology (including 1 which shouldn't be ignored).

Today we've zoomed in on a single data point to better understand the nature of Xiamen Sinic-Tek Intelligent Technology'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. 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.