The market wasn't impressed with the soft earnings from Anhui Hongyu Wuzhou Medical Manufacturer Co.,LTD. (SZSE:301234) recently. We did some analysis, and found that there are some reasons to be cautious about the headline numbers.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Anhui Hongyu Wuzhou Medical ManufacturerLTD's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥4.6m 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. Which is hardly surprising, given the name. If Anhui Hongyu Wuzhou Medical ManufacturerLTD 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 Anhui Hongyu Wuzhou Medical ManufacturerLTD.

Our Take On Anhui Hongyu Wuzhou Medical ManufacturerLTD's Profit Performance

Arguably, Anhui Hongyu Wuzhou Medical ManufacturerLTD's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Anhui Hongyu Wuzhou Medical ManufacturerLTD's true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over the last twelve months. 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. At Simply Wall St, we found 2 warning signs for Anhui Hongyu Wuzhou Medical ManufacturerLTD and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Anhui Hongyu Wuzhou Medical ManufacturerLTD's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 that insiders are buying 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.