Investors Can Find Comfort In Newcapec Electronics' (SZSE:300248) Earnings Quality

The market for Newcapec Electronics Co., Ltd.'s (SZSE:300248) shares didn't move much after it posted weak earnings recently. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

View our latest analysis for Newcapec Electronics

How Do Unusual Items Influence Profit?

For anyone who wants to understand Newcapec Electronics' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥25m 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. If Newcapec Electronics 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 Newcapec Electronics.

Our Take On Newcapec Electronics' Profit Performance

Unusual items (expenses) detracted from Newcapec Electronics' earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Newcapec Electronics' statutory profit actually understates its earnings potential! 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. If you'd like to know more about Newcapec Electronics as a business, it's important to be aware of any risks it's facing. To help with this, we've discovered 2 warning signs (1 makes us a bit uncomfortable!) that you ought to be aware of before buying any shares in Newcapec Electronics.

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