Shareholders Can Be Confident That Wuxi Lihu's (SZSE:300694) Earnings Are High Quality

Even though Wuxi Lihu Corporation Limited.'s (SZSE:300694) recent earnings release was robust, the market didn't seem to notice. We think that investors have missed some encouraging factors underlying the profit figures.

Check out our latest analysis for Wuxi Lihu

The Impact Of Unusual Items On Profit

To properly understand Wuxi Lihu's profit results, we need to consider the CN¥22m expense attributed to unusual items. 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, after all, that's exactly what the accounting terminology implies. If Wuxi Lihu doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Wuxi Lihu.

Our Take On Wuxi Lihu's Profit Performance

Unusual items (expenses) detracted from Wuxi Lihu's earnings over the last year, but we might see an improvement next year. Because of this, we think Wuxi Lihu's earnings potential is at least as good as it seems, and maybe even better! And the EPS is up 45% over the last twelve months. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. To help with this, we've discovered 2 warning signs (1 shouldn't be ignored!) that you ought to be aware of before buying any shares in Wuxi Lihu.

Today we've zoomed in on a single data point to better understand the nature of Wuxi Lihu'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.