Investors were disappointed with the weak earnings posted by Shenzhen Center Power Tech. Co., Ltd (SZSE:002733 ). While the headline numbers were soft, we believe that investors might be missing some encouraging factors.
How Do Unusual Items Influence Profit?
For anyone who wants to understand Shenzhen Center Power Tech's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥53m 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. 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 Shenzhen Center Power 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 Shenzhen Center Power Tech.
Our Take On Shenzhen Center Power Tech's Profit Performance
Unusual items (expenses) detracted from Shenzhen Center Power Tech's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Shenzhen Center Power Tech's statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. 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. For instance, we've identified 3 warning signs for Shenzhen Center Power Tech (1 is concerning) you should be familiar with.
This note has only looked at a single factor that sheds light on the nature of Shenzhen Center Power 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.