Weak Statutory Earnings May Not Tell The Whole Story For Dalian Dalicap TechnologyLtd (SZSE:301566)

The market rallied behind Dalian Dalicap Technology Co.,Ltd.'s (SZSE:301566) stock, leading do a rise in the share price after its recent weak earnings report. While shareholders may be willing to overlook soft profit numbers, we believe that they should also be taking into account some other factors which may be cause for concern.

Check out our latest analysis for Dalian Dalicap TechnologyLtd

How Do Unusual Items Influence Profit?

To properly understand Dalian Dalicap TechnologyLtd's profit results, we need to consider the CN¥14m gain attributed to 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 crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And, after all, that's exactly what the accounting terminology implies. If Dalian Dalicap TechnologyLtd doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Dalian Dalicap TechnologyLtd.

Our Take On Dalian Dalicap TechnologyLtd's Profit Performance

Arguably, Dalian Dalicap TechnologyLtd's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Dalian Dalicap TechnologyLtd's statutory profits are better than its underlying earnings power. Sadly, its EPS was down over 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Case in point: We've spotted 1 warning sign for Dalian Dalicap TechnologyLtd you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Dalian Dalicap TechnologyLtd'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. 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.