Investors Can Find Comfort In Guangdong Fenghua Advanced Technology (Holding)'s (SZSE:000636) Earnings Quality

Shareholders appeared unconcerned with Guangdong Fenghua Advanced Technology (Holding) Co., Ltd.'s (SZSE:000636) lackluster earnings report last week. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

See our latest analysis for Guangdong Fenghua Advanced Technology (Holding)

How Do Unusual Items Influence Profit?

For anyone who wants to understand Guangdong Fenghua Advanced Technology (Holding)'s profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥1.3m due 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. 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 expenses don't come up again, we'd therefore expect Guangdong Fenghua Advanced Technology (Holding) to produce a higher profit next year, all else being equal.

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 Guangdong Fenghua Advanced Technology (Holding)'s Profit Performance

Unusual items (expenses) detracted from Guangdong Fenghua Advanced Technology (Holding)'s earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Guangdong Fenghua Advanced Technology (Holding)'s statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in the last twelve months. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. So while earnings quality is important, it's equally important to consider the risks facing Guangdong Fenghua Advanced Technology (Holding) at this point in time. Every company has risks, and we've spotted 1 warning sign for Guangdong Fenghua Advanced Technology (Holding) you should know about.

This note has only looked at a single factor that sheds light on the nature of Guangdong Fenghua Advanced Technology (Holding)'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. 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.

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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.