Fu Hua Innovation's (TWSE:3056) Anemic Earnings Might Be Worse Than You Think

A lackluster earnings announcement from Fu Hua Innovation Co., Ltd. (TWSE:3056) last week didn't sink the stock price. However, we believe that investors should be aware of some underlying factors which may be of concern.

Check out our latest analysis for Fu Hua Innovation

How Do Unusual Items Influence Profit?

For anyone who wants to understand Fu Hua Innovation's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from NT$33m worth of unusual items. 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. And that's as you'd expect, given these boosts are described as 'unusual'. 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 Fu Hua Innovation.

Our Take On Fu Hua Innovation's Profit Performance

Arguably, Fu Hua Innovation's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Fu Hua Innovation's true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased in 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 Fu Hua Innovation, you'd also look into what risks it is currently facing. You'd be interested to know, that we found 1 warning sign for Fu Hua Innovation and you'll want to know about this.

This note has only looked at a single factor that sheds light on the nature of Fu Hua Innovation's profit. But there are plenty of other ways to inform your opinion of a company. 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.