Additional Considerations Required While Assessing Donglai Coating Technology(Shanghai)Co.Ltd's (SHSE:688129) Strong Earnings

Unsurprisingly, Donglai Coating Technology(Shanghai)Co.,Ltd's (SHSE:688129) stock price was strong on the back of its healthy earnings report. However, our analysis suggests that shareholders may be missing some factors that indicate the earnings result was not as good as it looked.

View our latest analysis for Donglai Coating Technology(Shanghai)Co.Ltd

How Do Unusual Items Influence Profit?

For anyone who wants to understand Donglai Coating Technology(Shanghai)Co.Ltd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥6.7m worth of unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. If Donglai Coating Technology(Shanghai)Co.Ltd doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Donglai Coating Technology(Shanghai)Co.Ltd.

Our Take On Donglai Coating Technology(Shanghai)Co.Ltd's Profit Performance

We'd posit that Donglai Coating Technology(Shanghai)Co.Ltd's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Donglai Coating Technology(Shanghai)Co.Ltd's statutory profits are better than its underlying earnings power. But the happy news is that, while acknowledging we have to look beyond the statutory numbers, those numbers are still improving, with EPS growing at a very high rate 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. At Simply Wall St, we found 1 warning sign for Donglai Coating Technology(Shanghai)Co.Ltd and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Donglai Coating Technology(Shanghai)Co.Ltd'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. 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.