Cheshi Technology Inc.'s (HKG:1490) recent soft profit numbers didn't appear to worry shareholders, as the stock price showed strength. However, we think the company is showing some signs that things are more promising than they seem.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Cheshi Technology's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥4.5m due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. Cheshi Technology took a rather significant hit from unusual items in the year to June 2024. 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 Cheshi Technology.

Our Take On Cheshi Technology's Profit Performance

As we mentioned previously, the Cheshi Technology's profit was hampered by unusual items in the last year. Based on this observation, we consider it possible that Cheshi Technology'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 Cheshi Technology at this point in time. Case in point: We've spotted 2 warning signs for Cheshi Technology you should be mindful of and 1 of these bad boys shouldn't be ignored.

This note has only looked at a single factor that sheds light on the nature of Cheshi Technology'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.