Shenzhen Energy Group's (SZSE:000027) Conservative Accounting Might Explain Soft Earnings

The most recent earnings report from Shenzhen Energy Group Co., Ltd. (SZSE:000027) was disappointing for shareholders. While the headline numbers were soft, we believe that investors might be missing some encouraging factors.

View our latest analysis for Shenzhen Energy Group

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Shenzhen Energy Group's profit was reduced by CN¥1.5b, due to unusual items, over the last year. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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. If Shenzhen Energy Group doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Shenzhen Energy Group.

Our Take On Shenzhen Energy Group's Profit Performance

Unusual items (expenses) detracted from Shenzhen Energy Group's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Shenzhen Energy Group's statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in the last twelve months. 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. If you'd like to know more about Shenzhen Energy Group as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 4 warning signs for Shenzhen Energy Group (of which 2 are a bit concerning!) you should know about.

This note has only looked at a single factor that sheds light on the nature of Shenzhen Energy Group's profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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.