Unsurprisingly, Qingdao Huijintong Power Equipment Co.,Ltd.'s (SHSE:603577) stock price was strong on the back of its healthy earnings report. We did some analysis and think that investors are missing some details hidden beneath the profit numbers.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Qingdao Huijintong Power EquipmentLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥60m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. Qingdao Huijintong Power EquipmentLtd had a rather significant contribution from unusual items relative to its profit to September 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Qingdao Huijintong Power EquipmentLtd.

Our Take On Qingdao Huijintong Power EquipmentLtd's Profit Performance

As we discussed above, we think the significant positive unusual item makes Qingdao Huijintong Power EquipmentLtd's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Qingdao Huijintong Power EquipmentLtd's underlying earnings power is lower than its statutory profit. The silver lining is that its EPS growth over the last year has been really wonderful, even if it's not a perfect measure. 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. So while earnings quality is important, it's equally important to consider the risks facing Qingdao Huijintong Power EquipmentLtd at this point in time. Our analysis shows 4 warning signs for Qingdao Huijintong Power EquipmentLtd (2 shouldn't be ignored!) and we strongly recommend you look at them before investing.

Today we've zoomed in on a single data point to better understand the nature of Qingdao Huijintong Power EquipmentLtd'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.