Solid Earnings May Not Tell The Whole Story For Shanghai SK Petroleum & Chemical Equipment (SZSE:002278) - Simply Wall St News

Following the solid earnings report from Shanghai SK Petroleum & Chemical Equipment Corporation Ltd. (SZSE:002278), the market responded by bidding up the stock price. Despite this, our analysis suggests that there are some factors weakening the foundations of those good profit numbers.

View our latest analysis for Shanghai SK Petroleum & Chemical Equipment

Importantly, our data indicates that Shanghai SK Petroleum & Chemical Equipment's profit received a boost of CN¥18m in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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. We can see that Shanghai SK Petroleum & Chemical Equipment's positive unusual items were quite significant relative to its profit in the year to September 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Shanghai SK Petroleum & Chemical Equipment.

As we discussed above, we think the significant positive unusual item makes Shanghai SK Petroleum & Chemical Equipment's earnings a poor guide to its underlying profitability. For this reason, we think that Shanghai SK Petroleum & Chemical Equipment'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 good news is that it earned a profit in the last twelve months, despite its previous loss. 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. If you want to do dive deeper into Shanghai SK Petroleum & Chemical Equipment, you'd also look into what risks it is currently facing. Be aware that Shanghai SK Petroleum & Chemical Equipment is showing 3 warning signs in our investment analysis and 1 of those is a bit concerning...

This note has only looked at a single factor that sheds light on the nature of Shanghai SK Petroleum & Chemical Equipment'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. 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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Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.

Engages in the research and development, and manufacture of petroleum and chemical equipment in China.

Adequate balance sheet low.