Investors Can Find Comfort In Anhui Annada Titanium Industry's (SZSE:002136) Earnings Quality

Anhui Annada Titanium Industry Co., Ltd.'s (SZSE:002136) recent soft profit numbers didn't appear to worry shareholders, as the stock price showed strength. Our analysis suggests that investors may have noticed some promising signs beyond the statutory profit figures.

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The Impact Of Unusual Items On Profit

To properly understand Anhui Annada Titanium Industry's profit results, we need to consider the CN¥11m expense attributed to unusual items. 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, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Anhui Annada Titanium Industry to produce a higher profit next year, all else being equal.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Anhui Annada Titanium Industry.

Our Take On Anhui Annada Titanium Industry's Profit Performance

Unusual items (expenses) detracted from Anhui Annada Titanium Industry's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Anhui Annada Titanium Industry'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 Anhui Annada Titanium Industry at this point in time. In terms of investment risks, we've identified 2 warning signs with Anhui Annada Titanium Industry, and understanding these should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Anhui Annada Titanium Industry'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. 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.