Additional Considerations Required While Assessing Yuan Jen EnterprisesLtd's (TWSE:1725) Strong Earnings

Despite posting some strong earnings, the market for Yuan Jen Enterprises Co.,Ltd.'s (TWSE:1725) stock hasn't moved much. Our analysis suggests that shareholders have noticed something concerning in the numbers.

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How Do Unusual Items Influence Profit?

Importantly, our data indicates that Yuan Jen EnterprisesLtd's profit received a boost of NT$37m in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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. Which is hardly surprising, given the name. 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 Yuan Jen EnterprisesLtd.

Our Take On Yuan Jen EnterprisesLtd's Profit Performance

Arguably, Yuan Jen EnterprisesLtd's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Yuan Jen EnterprisesLtd's statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 8.8% over the last three years. 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. So while earnings quality is important, it's equally important to consider the risks facing Yuan Jen EnterprisesLtd at this point in time. In terms of investment risks, we've identified 2 warning signs with Yuan Jen EnterprisesLtd, and understanding them should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Yuan Jen EnterprisesLtd'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.