Hangzhou Prevail Optoelectronic Equipment Co., Ltd.'s (SZSE:300710) recent earnings report didn't offer any surprises, with the shares unchanged over the last week. We did some analysis to find out why and believe that investors might be missing some encouraging factors contained in the earnings.

How Do Unusual Items Influence Profit?

To properly understand Hangzhou Prevail Optoelectronic Equipment's profit results, we need to consider the CN¥2.5m expense attributed 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 that's hardly a surprise given these line items are considered unusual. If Hangzhou Prevail Optoelectronic Equipment 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 Hangzhou Prevail Optoelectronic Equipment.

Our Take On Hangzhou Prevail Optoelectronic Equipment's Profit Performance

Unusual items (expenses) detracted from Hangzhou Prevail Optoelectronic Equipment's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Hangzhou Prevail Optoelectronic Equipment's statutory profit actually understates its earnings potential! And one can definitely find a positive in the fact that it made a profit this year, despite losing money 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 want to do dive deeper into Hangzhou Prevail Optoelectronic Equipment, you'd also look into what risks it is currently facing. Case in point: We've spotted 2 warning signs for Hangzhou Prevail Optoelectronic Equipment you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Hangzhou Prevail Optoelectronic Equipment'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 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.