Investors Can Find Comfort In Shanghai Holystar Information Technology's (SHSE:688330) Earnings Quality

Shareholders appeared unconcerned with Shanghai Holystar Information Technology Co., Ltd.'s (SHSE:688330) lackluster earnings report last week. We did some digging, and we believe the earnings are stronger than they seem.

See our latest analysis for Shanghai Holystar Information Technology

The Impact Of Unusual Items On Profit

For anyone who wants to understand Shanghai Holystar Information Technology's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥49m 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, after all, that's exactly what the accounting terminology implies. If Shanghai Holystar Information Technology doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

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 Shanghai Holystar Information Technology's Profit Performance

Unusual items (expenses) detracted from Shanghai Holystar Information Technology's earnings over the last year, but we might see an improvement next year. Because of this, we think Shanghai Holystar Information Technology'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. So while earnings quality is important, it's equally important to consider the risks facing Shanghai Holystar Information Technology at this point in time. For example, we've found that Shanghai Holystar Information Technology has 3 warning signs (1 doesn't sit too well with us!) 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 Holystar Information Technology's profit. But there are plenty of other ways to inform your opinion of a company. 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 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.