The market wasn't impressed with the soft earnings from HUAYU Automotive Systems Company Limited (SHSE:600741) recently. We did some further digging and think they have a few more reasons to be concerned beyond the statutory profit.

The Impact Of Unusual Items On Profit

For anyone who wants to understand HUAYU Automotive Systems' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥708m worth of unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. If HUAYU Automotive Systems doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

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.

Our Take On HUAYU Automotive Systems' Profit Performance

We'd posit that HUAYU Automotive Systems' statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that HUAYU Automotive Systems' statutory profits are better than its underlying earnings power. Sadly, its EPS was down over 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. While conducting our analysis, we found that HUAYU Automotive Systems has 1 warning sign and it would be unwise to ignore it.

Today we've zoomed in on a single data point to better understand the nature of HUAYU Automotive Systems' 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.