Tangshan Sunfar Silicon IndustriesLtd's (SHSE:603938) Conservative Accounting Might Explain Soft Earnings

Tangshan Sunfar Silicon Industries Co.,Ltd.'s (SHSE:603938) earnings announcement last week didn't impress shareholders. Despite the soft profit numbers, our analysis has optimistic about the overall quality of the income statement.

Check out our latest analysis for Tangshan Sunfar Silicon IndustriesLtd

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Tangshan Sunfar Silicon IndustriesLtd's profit was reduced by CN¥62m, 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. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. In the twelve months to June 2024, Tangshan Sunfar Silicon IndustriesLtd had a big unusual items expense. 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 Tangshan Sunfar Silicon IndustriesLtd.

Our Take On Tangshan Sunfar Silicon IndustriesLtd's Profit Performance

As we mentioned previously, the Tangshan Sunfar Silicon IndustriesLtd's profit was hampered by unusual items in the last year. Because of this, we think Tangshan Sunfar Silicon IndustriesLtd's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. At Simply Wall St, we found 2 warning signs for Tangshan Sunfar Silicon IndustriesLtd and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Tangshan Sunfar Silicon IndustriesLtd'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 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.