Suntak TechnologyLtd's (SZSE:002815) Conservative Accounting Might Explain Soft Earnings

Suntak Technology Co.,Ltd.'s (SZSE:002815) earnings announcement last week didn't impress shareholders. While the headline numbers were soft, we believe that investors might be missing some encouraging factors.

Check out our latest analysis for Suntak TechnologyLtd

How Do Unusual Items Influence Profit?

For anyone who wants to understand Suntak TechnologyLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥46m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. 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 Suntak TechnologyLtd 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 Suntak TechnologyLtd.

Our Take On Suntak TechnologyLtd's Profit Performance

Unusual items (expenses) detracted from Suntak TechnologyLtd's earnings over the last year, but we might see an improvement next year. Because of this, we think Suntak TechnologyLtd'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. 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 Suntak TechnologyLtd at this point in time. To help with this, we've discovered 3 warning signs (1 is significant!) that you ought to be aware of before buying any shares in Suntak TechnologyLtd.

Today we've zoomed in on a single data point to better understand the nature of Suntak TechnologyLtd'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. 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.