Statutory Profit Doesn't Reflect How Good Shanghai Shunho New Materials TechnologyLtd's (SZSE:002565) Earnings Are

When companies post strong earnings, the stock generally performs well, just like Shanghai Shunho New Materials Technology Co.,Ltd.'s (SZSE:002565) stock has recently. We did some digging and found some further encouraging factors that investors will like.

View our latest analysis for Shanghai Shunho New Materials TechnologyLtd

How Do Unusual Items Influence Profit?

To properly understand Shanghai Shunho New Materials TechnologyLtd's profit results, we need to consider the CN¥22m expense attributed 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. 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. Assuming those unusual expenses don't come up again, we'd therefore expect Shanghai Shunho New Materials TechnologyLtd 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 Shanghai Shunho New Materials TechnologyLtd.

Our Take On Shanghai Shunho New Materials TechnologyLtd's Profit Performance

Because unusual items detracted from Shanghai Shunho New Materials TechnologyLtd's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Shanghai Shunho New Materials TechnologyLtd's statutory profit actually understates its earnings potential! And one can definitely find a positive in the fact that it made a profit this year, despite losing money last year. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. 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. Every company has risks, and we've spotted 1 warning sign for Shanghai Shunho New Materials TechnologyLtd you should know about.

This note has only looked at a single factor that sheds light on the nature of Shanghai Shunho New Materials TechnologyLtd's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.