Shareholders Can Be Confident That Kunshan Huguang Auto HarnessLtd's (SHSE:605333) Earnings Are High Quality

When companies post strong earnings, the stock generally performs well, just like Kunshan Huguang Auto Harness Co.,Ltd.'s (SHSE:605333) stock has recently. We did some digging and found some further encouraging factors that investors will like.

See our latest analysis for Kunshan Huguang Auto HarnessLtd

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Kunshan Huguang Auto HarnessLtd's profit was reduced by CN¥44m, due to unusual items, over the last year. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. If Kunshan Huguang Auto HarnessLtd doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Kunshan Huguang Auto HarnessLtd's Profit Performance

Because unusual items detracted from Kunshan Huguang Auto HarnessLtd's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Kunshan Huguang Auto HarnessLtd's statutory profit actually understates its earnings potential! Furthermore, it has done a great job growing EPS over 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 Kunshan Huguang Auto HarnessLtd at this point in time. Every company has risks, and we've spotted 1 warning sign for Kunshan Huguang Auto HarnessLtd you should know about.

Today we've zoomed in on a single data point to better understand the nature of Kunshan Huguang Auto HarnessLtd's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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.