Anhui Liuguo Chemical's (SHSE:600470) Soft Earnings Don't Show The Whole Picture

Soft earnings didn't appear to concern Anhui Liuguo Chemical Co., Ltd.'s (SHSE:600470) 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 Anhui Liuguo Chemical

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Anhui Liuguo Chemical's profit was reduced by CN¥15m, due to unusual items, over the last year. 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 that's hardly a surprise given these line items are considered unusual. If Anhui Liuguo Chemical 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 Anhui Liuguo Chemical.

Our Take On Anhui Liuguo Chemical's Profit Performance

Unusual items (expenses) detracted from Anhui Liuguo Chemical's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Anhui Liuguo Chemical's statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in the last twelve months. 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 Anhui Liuguo Chemical has 2 warning signs and it would be unwise to ignore them.

This note has only looked at a single factor that sheds light on the nature of Anhui Liuguo Chemical'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.