Shareholders appeared unconcerned with Junhe Pumps Holding Co.,Ltd's (SHSE:603617) lackluster earnings report last week. We did some digging, and we believe the earnings are stronger than they seem.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Junhe Pumps HoldingLtd's profit was reduced by CN¥4.1m, due to unusual items, over the last year. 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. Junhe Pumps HoldingLtd took a rather significant hit from unusual items in the year to December 2023. As a result, we can surmise that the unusual items made its statutory profit significantly weaker 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 Junhe Pumps HoldingLtd.

Our Take On Junhe Pumps HoldingLtd's Profit Performance

As we discussed above, we think the significant unusual expense will make Junhe Pumps HoldingLtd's statutory profit lower than it would otherwise have been. Based on this observation, we consider it possible that Junhe Pumps HoldingLtd's statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over 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 Junhe Pumps HoldingLtd at this point in time. For example - Junhe Pumps HoldingLtd has 1 warning sign we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Junhe Pumps HoldingLtd'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. 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.