Solid Earnings May Not Tell The Whole Story For West Shanghai Automotive ServiceLtd (SHSE:605151)

West Shanghai Automotive Service Co.,Ltd.'s (SHSE:605151) robust recent earnings didn't do much to move the stock. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.

View our latest analysis for West Shanghai Automotive ServiceLtd

How Do Unusual Items Influence Profit?

To properly understand West Shanghai Automotive ServiceLtd's profit results, we need to consider the CN¥14m gain attributed to unusual items. 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 West Shanghai Automotive ServiceLtd 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 West Shanghai Automotive ServiceLtd.

Our Take On West Shanghai Automotive ServiceLtd's Profit Performance

Arguably, West Shanghai Automotive ServiceLtd's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that West Shanghai Automotive ServiceLtd's statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased 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. So while earnings quality is important, it's equally important to consider the risks facing West Shanghai Automotive ServiceLtd at this point in time. At Simply Wall St, we found 1 warning sign for West Shanghai Automotive ServiceLtd and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of West Shanghai Automotive ServiceLtd'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.