Zhejiang Dehong Automotive Electronic & Electrical's (SHSE:603701) Earnings Are Of Questionable Quality

Despite posting some strong earnings, the market for Zhejiang Dehong Automotive Electronic & Electrical Co., Ltd.'s (SHSE:603701) stock hasn't moved much. Our analysis suggests that shareholders have noticed something concerning in the numbers.

See our latest analysis for Zhejiang Dehong Automotive Electronic & Electrical

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Zhejiang Dehong Automotive Electronic & Electrical's profit received a boost of CN¥3.1m 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. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. Zhejiang Dehong Automotive Electronic & Electrical had a rather significant contribution from unusual items relative to its profit to June 2024. 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 Zhejiang Dehong Automotive Electronic & Electrical.

Our Take On Zhejiang Dehong Automotive Electronic & Electrical's Profit Performance

As previously mentioned, Zhejiang Dehong Automotive Electronic & Electrical's large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. As a result, we think it may well be the case that Zhejiang Dehong Automotive Electronic & Electrical's underlying earnings power is lower than its statutory profit. The good news is that, its earnings per share increased by 66% in 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Zhejiang Dehong Automotive Electronic & Electrical.

Today we've zoomed in on a single data point to better understand the nature of Zhejiang Dehong Automotive Electronic & Electrical'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 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.