Fujian Torch Electron Technology's (SHSE:603678) Weak Earnings May Only Reveal A Part Of The Whole Picture

The market wasn't impressed with the soft earnings from Fujian Torch Electron Technology Co., Ltd. (SHSE:603678) recently. We did some analysis, and found that there are some reasons to be cautious about the headline numbers.

View our latest analysis for Fujian Torch Electron Technology

How Do Unusual Items Influence Profit?

For anyone who wants to understand Fujian Torch Electron Technology's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥46m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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 items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Fujian Torch Electron Technology's Profit Performance

Arguably, Fujian Torch Electron Technology's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Fujian Torch Electron Technology's statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the 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. So while earnings quality is important, it's equally important to consider the risks facing Fujian Torch Electron Technology at this point in time. In terms of investment risks, we've identified 1 warning sign with Fujian Torch Electron Technology, and understanding this should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Fujian Torch Electron Technology'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. 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.