Shanghai Kinlita Chemical's (SZSE:300225) Strong Earnings Are Of Good Quality

Shanghai Kinlita Chemical Co., Ltd.'s (SZSE:300225) strong earnings report was rewarded with a positive stock price move. Our analysis found some more factors that we think are good for shareholders.

Check out our latest analysis for Shanghai Kinlita Chemical

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Shanghai Kinlita Chemical's profit was reduced by CN¥4.0m, due to unusual items, over the last year. 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 Kinlita Chemical 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 Kinlita Chemical.

Our Take On Shanghai Kinlita Chemical's Profit Performance

Unusual items (expenses) detracted from Shanghai Kinlita Chemical's earnings over the last year, but we might see an improvement next year. Because of this, we think Shanghai Kinlita Chemical's earnings potential is at least as good as it seems, and maybe even better! And it's also positive that the company showed enough improvement to book a profit this year, after losing money 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. If you'd like to know more about Shanghai Kinlita Chemical as a business, it's important to be aware of any risks it's facing. For example, we've found that Shanghai Kinlita Chemical has 2 warning signs (1 is potentially serious!) that deserve your attention before going any further with your analysis.

Today we've zoomed in on a single data point to better understand the nature of Shanghai Kinlita Chemical'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 that insiders are buying.

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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.