A lackluster earnings announcement from Shandong Dawn Polymer Co.,Ltd. (SZSE:002838) last week didn't sink the stock price. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.
How Do Unusual Items Influence Profit?
Importantly, our data indicates that Shandong Dawn PolymerLtd's profit received a boost of CN¥25m in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. If Shandong Dawn PolymerLtd doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Shandong Dawn PolymerLtd.
Our Take On Shandong Dawn PolymerLtd's Profit Performance
We'd posit that Shandong Dawn PolymerLtd's 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 Shandong Dawn PolymerLtd's statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased 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 want to do dive deeper into Shandong Dawn PolymerLtd, you'd also look into what risks it is currently facing. Case in point: We've spotted 1 warning sign for Shandong Dawn PolymerLtd you should be aware of.
This note has only looked at a single factor that sheds light on the nature of Shandong Dawn PolymerLtd's profit. But there are plenty of other ways to inform your opinion of a company. 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.