Are Zhengzhou Coal Mining Machinery Group's (HKG:564) Statutory Earnings A Good Guide To Its Underlying Profitability?

As a general rule, we think profitable companies are less risky than companies that lose money. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. Today we'll focus on whether this year's statutory profits are a good guide to understanding Zhengzhou Coal Mining Machinery Group (HKG:564).

It's good to see that over the last twelve months Zhengzhou Coal Mining Machinery Group made a profit of CN¥1.19b on revenue of CN¥26.1b. Happily, it has grown both its profit and revenue over the last three years, as you can see in the chart below.

See our latest analysis for Zhengzhou Coal Mining Machinery Group

Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. This article will focus on the impact unusual items have had on Zhengzhou Coal Mining Machinery Group's statutory earnings. That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Zhengzhou Coal Mining Machinery Group's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥794m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. If Zhengzhou Coal Mining Machinery Group doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On Zhengzhou Coal Mining Machinery Group's Profit Performance

Because unusual items detracted from Zhengzhou Coal Mining Machinery 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 Zhengzhou Coal Mining Machinery Group's earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share have grown at an extremely impressive rate over the last three years. 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. So while earnings quality is important, it's equally important to consider the risks facing Zhengzhou Coal Mining Machinery Group at this point in time. At Simply Wall St, we found 3 warning signs for Zhengzhou Coal Mining Machinery Group and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Zhengzhou Coal Mining Machinery Group's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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. 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.
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