Investors Can Find Comfort In Wolong Electric GroupLtd's (SHSE:600580) Earnings Quality

Investors were disappointed with the weak earnings posted by Wolong Electric Group Co.,Ltd. (SHSE:600580 ). While the headline numbers were soft, we believe that investors might be missing some encouraging factors.

Check out our latest analysis for Wolong Electric GroupLtd

How Do Unusual Items Influence Profit?

To properly understand Wolong Electric GroupLtd's profit results, we need to consider the CN¥376m expense attributed to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. If Wolong Electric GroupLtd 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 Wolong Electric GroupLtd's Profit Performance

Unusual items (expenses) detracted from Wolong Electric GroupLtd's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Wolong Electric GroupLtd's statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Case in point: We've spotted 4 warning signs for Wolong Electric GroupLtd you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Wolong Electric GroupLtd's profit. But there are plenty of other ways to inform your opinion of a company. 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. 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.