The market for XCMG Construction Machinery Co., Ltd.'s (SZSE:000425) stock was strong after it released a healthy earnings report last week. Despite this, our analysis suggests that there are some factors weakening the foundations of those good profit numbers.

The Impact Of Unusual Items On Profit

For anyone who wants to understand XCMG Construction Machinery's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥1.3b worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. If XCMG Construction Machinery 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 XCMG Construction Machinery's Profit Performance

We'd posit that XCMG Construction Machinery's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that XCMG Construction Machinery's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 32% EPS growth in the last year. 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. If you'd like to know more about XCMG Construction Machinery as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 3 warning signs for XCMG Construction Machinery (of which 1 is concerning!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of XCMG Construction Machinery'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. 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.