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

Shareholders appeared unconcerned with Shenzhen Energy Group Co., Ltd.'s (SZSE:000027) lackluster earnings report last week. We did some digging, and we believe the earnings are stronger than they seem.

See our latest analysis for Shenzhen Energy Group

How Do Unusual Items Influence Profit?

For anyone who wants to understand Shenzhen Energy Group's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥1.2b due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Shenzhen Energy Group to produce a higher profit next year, all else being equal.

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

Because unusual items detracted from Shenzhen Energy Group's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Shenzhen Energy Group's earnings potential is at least as good as it seems, and maybe even better! On the other hand, its EPS actually shrunk in the last twelve months. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. To help with this, we've discovered 5 warning signs (3 are a bit unpleasant!) that you ought to be aware of before buying any shares in Shenzhen Energy Group.

Today we've zoomed in on a single data point to better understand the nature of Shenzhen Energy Group'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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.