Zhejiang Goldensea Hi-Tech Co., Ltd's (SHSE:603311) stock was strong despite it releasing a soft earnings report last week. However, we think the company is showing some signs that things are more promising than they seem.
The Impact Of Unusual Items On Profit
For anyone who wants to understand Zhejiang Goldensea Hi-Tech's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥8.9m 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, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Zhejiang Goldensea Hi-Tech 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 Zhejiang Goldensea Hi-Tech.
Our Take On Zhejiang Goldensea Hi-Tech's Profit Performance
Unusual items (expenses) detracted from Zhejiang Goldensea Hi-Tech's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Zhejiang Goldensea Hi-Tech'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. 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 that end, you should learn about the 2 warning signs we've spotted with Zhejiang Goldensea Hi-Tech (including 1 which is significant).
This note has only looked at a single factor that sheds light on the nature of Zhejiang Goldensea Hi-Tech'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.