Wafer Works (Shanghai) Co., Ltd.'s (SHSE:688584) recent weak earnings report didn't cause a big stock movement. We think that investors are worried about some weaknesses underlying the earnings.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Wafer Works (Shanghai)'s profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥46m 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. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. 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 Wafer Works (Shanghai).

Our Take On Wafer Works (Shanghai)'s Profit Performance

Arguably, Wafer Works (Shanghai)'s statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Wafer Works (Shanghai)'s statutory profits are better than its underlying earnings power. But the good news is that its EPS growth over the last three years has been very impressive. 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'd like to know more about Wafer Works (Shanghai) as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 1 warning sign for Wafer Works (Shanghai) you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Wafer Works (Shanghai)'s profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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. 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.