Shanghai Emperor of Cleaning Hi-Tech Co., Ltd's (SHSE:603200) stock was strong after they reported robust earnings. However, we think that shareholders may be missing some concerning details in the numbers.

View our latest analysis for Shanghai Emperor of Cleaning Hi-Tech

The Impact Of Unusual Items On Profit

For anyone who wants to understand Shanghai Emperor of Cleaning Hi-Tech's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥6.0m worth of unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. If Shanghai Emperor of Cleaning Hi-Tech doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Shanghai Emperor of Cleaning Hi-Tech.

Our Take On Shanghai Emperor of Cleaning Hi-Tech's Profit Performance

We'd posit that Shanghai Emperor of Cleaning Hi-Tech's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Shanghai Emperor of Cleaning Hi-Tech's statutory profits are better than its underlying earnings power. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Shanghai Emperor of Cleaning Hi-Tech.

Today we've zoomed in on a single data point to better understand the nature of Shanghai Emperor of Cleaning Hi-Tech'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. 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.