Yechiu Metal Recycling (China)'s (SHSE:601388) Soft Earnings Are Actually Better Than They Appear

Shareholders appeared unconcerned with Yechiu Metal Recycling (China) Ltd.'s (SHSE:601388) lackluster earnings report last week. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

View our latest analysis for Yechiu Metal Recycling (China)

The Impact Of Unusual Items On Profit

For anyone who wants to understand Yechiu Metal Recycling (China)'s profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥23m 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. 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 Yechiu Metal Recycling (China) doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

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 Yechiu Metal Recycling (China)'s Profit Performance

Unusual items (expenses) detracted from Yechiu Metal Recycling (China)'s earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Yechiu Metal Recycling (China)'s statutory profit actually understates its earnings potential! 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. So while earnings quality is important, it's equally important to consider the risks facing Yechiu Metal Recycling (China) at this point in time. At Simply Wall St, we found 1 warning sign for Yechiu Metal Recycling (China) and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Yechiu Metal Recycling (China)'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 with high insider ownership.

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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.