Investors Can Find Comfort In Shanghai Ace Investment&DevelopmentLtd's (SHSE:603329) Earnings Quality

Shareholders appeared unconcerned with Shanghai Ace Investment&Development Co.,Ltd's (SHSE:603329) lackluster earnings report last week. We did some digging, and we believe the earnings are stronger than they seem.

View our latest analysis for Shanghai Ace Investment&DevelopmentLtd

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Shanghai Ace Investment&DevelopmentLtd's profit was reduced by CN¥29m, due to unusual items, over the last year. 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 that's hardly a surprise given these line items are considered unusual. In the twelve months to March 2024, Shanghai Ace Investment&DevelopmentLtd had a big unusual items expense. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Shanghai Ace Investment&DevelopmentLtd.

Our Take On Shanghai Ace Investment&DevelopmentLtd's Profit Performance

As we discussed above, we think the significant unusual expense will make Shanghai Ace Investment&DevelopmentLtd's statutory profit lower than it would otherwise have been. Because of this, we think Shanghai Ace Investment&DevelopmentLtd's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! Unfortunately, though, its earnings per share actually fell back over the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you want to do dive deeper into Shanghai Ace Investment&DevelopmentLtd, you'd also look into what risks it is currently facing. For instance, we've identified 3 warning signs for Shanghai Ace Investment&DevelopmentLtd (1 shouldn't be ignored) you should be familiar with.

This note has only looked at a single factor that sheds light on the nature of Shanghai Ace Investment&DevelopmentLtd's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.