Shenzhen Tongyi Industry Co., Ltd. (SZSE:300538) just reported healthy earnings but the stock price didn't move much. Our analysis suggests that investors might be missing some promising details.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Shenzhen Tongyi Industry's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥5.2m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. If Shenzhen Tongyi Industry 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 Shenzhen Tongyi Industry.

Our Take On Shenzhen Tongyi Industry's Profit Performance

Because unusual items detracted from Shenzhen Tongyi Industry's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Shenzhen Tongyi Industry's earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share increased by 35% in the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you'd like to know more about Shenzhen Tongyi Industry as a business, it's important to be aware of any risks it's facing. At Simply Wall St, we found 2 warning signs for Shenzhen Tongyi Industry and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Shenzhen Tongyi Industry'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. 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.