Despite posting some strong earnings, the market for Shanghai YongLi Belting Co., Ltd's (SZSE:300230) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Shanghai YongLi Belting's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥154m worth of unusual items. 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'. Shanghai YongLi Belting had a rather significant contribution from unusual items relative to its profit to September 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Shanghai YongLi Belting.

Our Take On Shanghai YongLi Belting's Profit Performance

As we discussed above, we think the significant positive unusual item makes Shanghai YongLi Belting's earnings a poor guide to its underlying profitability. For this reason, we think that Shanghai YongLi Belting's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. The good news is that, its earnings per share increased by 64% 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'd like to know more about Shanghai YongLi Belting as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that Shanghai YongLi Belting has 2 warning signs and it would be unwise to ignore these.

Today we've zoomed in on a single data point to better understand the nature of Shanghai YongLi Belting'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 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.