We Think You Should Be Aware Of Some Concerning Factors In Xuelong GroupLtd's (SHSE:603949) Earnings

The market shrugged off Xuelong Group Co.,Ltd's (SHSE:603949) solid earnings report. We did some digging and believe investors may be worried about some underlying factors in the report.

See our latest analysis for Xuelong GroupLtd

How Do Unusual Items Influence Profit?

For anyone who wants to understand Xuelong GroupLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥7.3m 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 that's as you'd expect, given these boosts are described as 'unusual'. If Xuelong GroupLtd 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 Xuelong GroupLtd.

Our Take On Xuelong GroupLtd's Profit Performance

Arguably, Xuelong GroupLtd's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Xuelong GroupLtd's true underlying earnings power is actually less than its statutory profit. The good news is that its earnings per share increased slightly 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. Every company has risks, and we've spotted 2 warning signs for Xuelong GroupLtd you should know about.

This note has only looked at a single factor that sheds light on the nature of Xuelong GroupLtd'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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.