Investors Can Find Comfort In Shenzhen Rapoo Technology's (SZSE:002577) Earnings Quality

Soft earnings didn't appear to concern Shenzhen Rapoo Technology Co., Ltd.'s (SZSE:002577) shareholders over the last week. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

View our latest analysis for Shenzhen Rapoo Technology

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Shenzhen Rapoo Technology's profit was reduced by CN¥1.9m, 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. 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. If Shenzhen Rapoo Technology doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Shenzhen Rapoo Technology.

Our Take On Shenzhen Rapoo Technology's Profit Performance

Because unusual items detracted from Shenzhen Rapoo Technology's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Shenzhen Rapoo Technology'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 if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. In terms of investment risks, we've identified 1 warning sign with Shenzhen Rapoo 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 Shenzhen Rapoo Technology'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. 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.