Yuanli Chemical GroupLtd's (SHSE:603217) Shareholders Have More To Worry About Than Only Soft Earnings

The subdued market reaction suggests that Yuanli Chemical Group Co.,Ltd.'s (SHSE:603217) recent earnings didn't contain any surprises. However, we believe that investors should be aware of some underlying factors which may be of concern.

View our latest analysis for Yuanli Chemical GroupLtd

How Do Unusual Items Influence Profit?

To properly understand Yuanli Chemical GroupLtd's profit results, we need to consider the CN¥26m gain attributed to unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

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 Yuanli Chemical GroupLtd's Profit Performance

Arguably, Yuanli Chemical GroupLtd's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Yuanli Chemical GroupLtd's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 56% per annum growth in EPS for the last three. 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 while earnings quality is important, it's equally important to consider the risks facing Yuanli Chemical GroupLtd at this point in time. You'd be interested to know, that we found 2 warning signs for Yuanli Chemical GroupLtd and you'll want to know about them.

Today we've zoomed in on a single data point to better understand the nature of Yuanli Chemical GroupLtd'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.