Investors Can Find Comfort In Lafang ChinaLtd's (SHSE:603630) Earnings Quality

Soft earnings didn't appear to concern Lafang China Co.,Ltd's (SHSE:603630) shareholders over the last week. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

Check out our latest analysis for Lafang ChinaLtd

How Do Unusual Items Influence Profit?

For anyone who wants to understand Lafang ChinaLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥38m due 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 that's hardly a surprise given these line items are considered unusual. If Lafang ChinaLtd 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 Lafang ChinaLtd.

Our Take On Lafang ChinaLtd's Profit Performance

Unusual items (expenses) detracted from Lafang ChinaLtd's earnings over the last year, but we might see an improvement next year. Because of this, we think Lafang ChinaLtd's earnings potential is at least as good as it seems, and maybe even better! 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. If you want to do dive deeper into Lafang ChinaLtd, you'd also look into what risks it is currently facing. To that end, you should learn about the 4 warning signs we've spotted with Lafang ChinaLtd (including 1 which shouldn't be ignored).

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

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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.