Changzhou Aohong Electronics Co., Ltd.'s (SHSE:605058) robust recent earnings didn't do much to move the stock. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Changzhou Aohong Electronics' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥22m 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. If Changzhou Aohong Electronics 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 Changzhou Aohong Electronics.

Our Take On Changzhou Aohong Electronics' Profit Performance

Arguably, Changzhou Aohong Electronics' statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Changzhou Aohong Electronics' true underlying earnings power is actually less than its statutory profit. The good news is that, its earnings per share increased by 5.4% in the 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. So while earnings quality is important, it's equally important to consider the risks facing Changzhou Aohong Electronics at this point in time. Every company has risks, and we've spotted 1 warning sign for Changzhou Aohong Electronics you should know about.

Today we've zoomed in on a single data point to better understand the nature of Changzhou Aohong Electronics' 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. 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 with significant insider holdings 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.