The market seemed underwhelmed by the solid earnings posted by Aurora Optoelectronics Co.,Ltd. (SHSE:600666) recently. Along with the solid headline numbers, we think that investors have some reasons for optimism.

View our latest analysis for Aurora OptoelectronicsLtd

How Do Unusual Items Influence Profit?

To properly understand Aurora OptoelectronicsLtd's profit results, we need to consider the CN¥403m 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, after all, that's exactly what the accounting terminology implies. Aurora OptoelectronicsLtd took a rather significant hit from unusual items in the year to December 2022. 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 Aurora OptoelectronicsLtd.

Our Take On Aurora OptoelectronicsLtd's Profit Performance

As we mentioned previously, the Aurora OptoelectronicsLtd's profit was hampered by unusual items in the last year. Because of this, we think Aurora OptoelectronicsLtd's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! And one can definitely find a positive in the fact that it made a profit this year, despite losing money 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. If you want to do dive deeper into Aurora OptoelectronicsLtd, you'd also look into what risks it is currently facing. To help with this, we've discovered 4 warning signs (3 make us uncomfortable!) that you ought to be aware of before buying any shares in Aurora OptoelectronicsLtd.

This note has only looked at a single factor that sheds light on the nature of Aurora OptoelectronicsLtd's profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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.