Even though Integrated Electronic Systems Lab Co., Ltd. (SZSE:002339 ) posted strong earnings, investors appeared to be underwhelmed. Our analysis says that investors should be optimistic, as the strong profit is built on solid foundations.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Integrated Electronic Systems Lab's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥16m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. If Integrated Electronic Systems Lab doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Integrated Electronic Systems Lab.

Our Take On Integrated Electronic Systems Lab's Profit Performance

Unusual items (expenses) detracted from Integrated Electronic Systems Lab's earnings over the last year, but we might see an improvement next year. Because of this, we think Integrated Electronic Systems Lab's earnings potential is at least as good as it seems, and maybe even better! And one can definitely find a positive in the fact that it made a profit this year, despite losing money last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Integrated Electronic Systems Lab.

This note has only looked at a single factor that sheds light on the nature of Integrated Electronic Systems Lab'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 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.