Shenyu Communication Technology's (SZSE:300563) Shareholders May Want To Dig Deeper Than Statutory Profit

The market for Shenyu Communication Technology Inc.'s (SZSE:300563) stock was strong after it released a healthy earnings report last week. However, we think that shareholders should be cautious as we found some worrying factors underlying the profit.

See our latest analysis for Shenyu Communication Technology

How Do Unusual Items Influence Profit?

For anyone who wants to understand Shenyu Communication Technology's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥6.2m worth of unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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 items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

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

Our Take On Shenyu Communication Technology's Profit Performance

Arguably, Shenyu Communication Technology's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Shenyu Communication Technology's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 16% EPS growth in the last year. 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 want to do dive deeper into Shenyu Communication Technology, you'd also look into what risks it is currently facing. For example, we've found that Shenyu Communication Technology has 3 warning signs (2 make us uncomfortable!) that deserve your attention before going any further with your analysis.

This note has only looked at a single factor that sheds light on the nature of Shenyu Communication Technology'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.