Kehua Data's (SZSE:002335) Strong Earnings Are Of Good Quality

Kehua Data Co., Ltd. (SZSE:002335) recently posted some strong earnings, and the market responded positively. Our analysis found some more factors that we think are good for shareholders.

View our latest analysis for Kehua Data

The Impact Of Unusual Items On Profit

For anyone who wants to understand Kehua Data's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥125m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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. Assuming those unusual expenses don't come up again, we'd therefore expect Kehua Data to produce a higher profit next year, all else being equal.

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 Kehua Data's Profit Performance

Unusual items (expenses) detracted from Kehua Data's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Kehua Data's statutory profit actually understates its earnings potential! And on top of that, its earnings per share increased by 48% 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. If you'd like to know more about Kehua Data as a business, it's important to be aware of any risks it's facing. You'd be interested to know, that we found 1 warning sign for Kehua Data and you'll want to know about it.

This note has only looked at a single factor that sheds light on the nature of Kehua Data'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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.