Investors were disappointed with Brilliance Technology Co., Ltd.'s (SZSE:300542) earnings, despite the strong profit numbers. We think that the market might be paying attention to some underlying factors that they find to be concerning.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Brilliance Technology's profit received a boost of CN¥14m in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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'. Brilliance Technology had a rather significant contribution from unusual items relative to its profit to September 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Brilliance Technology's Profit Performance

As we discussed above, we think the significant positive unusual item makes Brilliance Technology's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Brilliance Technology's underlying earnings power is lower than its statutory profit. The good news is that, its earnings per share increased by 80% 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Every company has risks, and we've spotted 2 warning signs for Brilliance Technology (of which 1 is concerning!) you should know about.

This note has only looked at a single factor that sheds light on the nature of Brilliance Technology'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.