Ningbo Sunrise Elc TechnologyLtd's (SZSE:002937) Profits Appear To Have Quality Issues

The stock price didn't jump after Ningbo Sunrise Elc Technology Co.,Ltd (SZSE:002937) posted decent earnings last week. We did some digging and believe investors may be worried about some underlying factors in the report.

Check out our latest analysis for Ningbo Sunrise Elc TechnologyLtd

Operating Revenue Or Not?

At most companies, some revenue streams, such as government grants, are accounted for as non-operating revenue, while the core business is said to produce operating revenue. Where possible, we prefer rely on operating revenue to get a better understanding of how the business is functioning. Importantly, the non-operating revenue often comes without associated ongoing costs, so it can boost profit by letting it fall straight to the bottom line, making the operating business seem better than it really is. It's worth noting that Ningbo Sunrise Elc TechnologyLtd saw a big increase in non-operating revenue over the last year. In fact, our data indicates that non-operating revenue increased from CN¥112.5m to CN¥227.3m. The high levels of non-operating revenue are problematic because if (and when) they do not repeat, then overall revenue (and profitability) of the firm will fall. Sometimes, you can get a better idea of the underlying earnings potential of a company by excluding unusual boosts to non-operating revenue.

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 Ningbo Sunrise Elc TechnologyLtd's Profit Performance

When considering the nature of Ningbo Sunrise Elc TechnologyLtd's earnings, we'd absolutely keep in mind that it saw an increase in non-operating revenue in the last year, which would in turn have boosted its profit, potentially in an unsustainable manner. Therefore, it seems possible to us that Ningbo Sunrise Elc TechnologyLtd's true underlying earnings power is actually less than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. 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 Ningbo Sunrise Elc TechnologyLtd at this point in time. For example - Ningbo Sunrise Elc TechnologyLtd has 1 warning sign we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Ningbo Sunrise Elc 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. 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 with significant insider holdings 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.