Jiangyin Zhongnan Heavy Industries Co.,Ltd (SZSE:002445) announced strong profits, but the stock was stagnant. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Jiangyin Zhongnan Heavy IndustriesLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥39m 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. And that's as you'd expect, given these boosts are described as 'unusual'. We can see that Jiangyin Zhongnan Heavy IndustriesLtd's positive unusual items were quite significant relative to its profit in the year to December 2023. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Jiangyin Zhongnan Heavy IndustriesLtd.

Our Take On Jiangyin Zhongnan Heavy IndustriesLtd's Profit Performance

As we discussed above, we think the significant positive unusual item makes Jiangyin Zhongnan Heavy IndustriesLtd's earnings a poor guide to its underlying profitability. For this reason, we think that Jiangyin Zhongnan Heavy IndustriesLtd's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. The silver lining is that its EPS growth over the last year has been really wonderful, even if it's not a perfect measure. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. In terms of investment risks, we've identified 1 warning sign with Jiangyin Zhongnan Heavy IndustriesLtd, and understanding it should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Jiangyin Zhongnan Heavy IndustriesLtd's 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 that insiders are buying 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.