Investors Can Find Comfort In Hangzhou Weiguang ElectronicLtd's (SZSE:002801) Earnings Quality

Soft earnings didn't appear to concern Hangzhou Weiguang Electronic Co.,Ltd.'s (SZSE:002801) shareholders over the last week. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

Check out our latest analysis for Hangzhou Weiguang ElectronicLtd

How Do Unusual Items Influence Profit?

For anyone who wants to understand Hangzhou Weiguang ElectronicLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥217m due 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. Hangzhou Weiguang ElectronicLtd took a rather significant hit from unusual items in the year to March 2024. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Hangzhou Weiguang ElectronicLtd.

Our Take On Hangzhou Weiguang ElectronicLtd's Profit Performance

As we mentioned previously, the Hangzhou Weiguang ElectronicLtd's profit was hampered by unusual items in the last year. Because of this, we think Hangzhou Weiguang ElectronicLtd's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. You'd be interested to know, that we found 3 warning signs for Hangzhou Weiguang ElectronicLtd and you'll want to know about them.

Today we've zoomed in on a single data point to better understand the nature of Hangzhou Weiguang ElectronicLtd's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.

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.