We Think That There Are Issues Underlying Shanghai Yanhua Smartech Group's (SZSE:002178) Earnings

Despite posting some strong earnings, the market for Shanghai Yanhua Smartech Group Co., Ltd.'s (SZSE:002178) stock hasn't moved much. Our analysis suggests that shareholders have noticed something concerning in the numbers.

Check out our latest analysis for Shanghai Yanhua Smartech Group

The Impact Of Unusual Items On Profit

For anyone who wants to understand Shanghai Yanhua Smartech Group's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥23m worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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'. Shanghai Yanhua Smartech Group had a rather significant contribution from unusual items relative to its profit to March 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Shanghai Yanhua Smartech Group.

Our Take On Shanghai Yanhua Smartech Group's Profit Performance

As we discussed above, we think the significant positive unusual item makes Shanghai Yanhua Smartech Group's earnings a poor guide to its underlying profitability. For this reason, we think that Shanghai Yanhua Smartech Group's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. The good news is that it earned a profit in the last twelve months, despite its previous loss. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. While conducting our analysis, we found that Shanghai Yanhua Smartech Group has 1 warning sign and it would be unwise to ignore it.

This note has only looked at a single factor that sheds light on the nature of Shanghai Yanhua Smartech Group'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. 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.