Xiamen Leading Optics Co., Ltd.'s (SHSE:605118) healthy profit numbers didn't contain any surprises for investors. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Xiamen Leading Optics' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥11m 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'. If Xiamen Leading Optics doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Xiamen Leading Optics.

Our Take On Xiamen Leading Optics' Profit Performance

Arguably, Xiamen Leading Optics' statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Xiamen Leading Optics' true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 13% EPS growth in the last year. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Be aware that Xiamen Leading Optics is showing 2 warning signs in our investment analysis and 1 of those doesn't sit too well with us...

Today we've zoomed in on a single data point to better understand the nature of Xiamen Leading Optics' 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. 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.