Investors Can Find Comfort In Shanghai New Huang Pu Industrial Group's (SHSE:600638) Earnings Quality

Shareholders appeared unconcerned with Shanghai New Huang Pu Industrial Group Co., Ltd.'s (SHSE:600638) lackluster earnings report last week. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

View our latest analysis for Shanghai New Huang Pu Industrial Group

The Impact Of Unusual Items On Profit

For anyone who wants to understand Shanghai New Huang Pu Industrial Group's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥19m due to unusual items. 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 that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Shanghai New Huang Pu Industrial Group 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 New Huang Pu Industrial Group.

Our Take On Shanghai New Huang Pu Industrial Group's Profit Performance

Because unusual items detracted from Shanghai New Huang Pu Industrial Group's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Shanghai New Huang Pu Industrial Group's earnings potential is at least as good as it seems, and maybe even better! On the other hand, its EPS actually shrunk in the last twelve months. 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 2 warning signs for Shanghai New Huang Pu Industrial Group and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Shanghai New Huang Pu Industrial Group'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 with significant insider holdings 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.