The market for Shanghai Hile Bio-Technology Co., Ltd.'s (SHSE:603718) shares didn't move much after it posted weak earnings recently. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Shanghai Hile Bio-Technology's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥19m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. Shanghai Hile Bio-Technology took a rather significant hit from unusual items in the year to March 2024. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Shanghai Hile Bio-Technology.

Our Take On Shanghai Hile Bio-Technology's Profit Performance

As we mentioned previously, the Shanghai Hile Bio-Technology's profit was hampered by unusual items in the last year. Because of this, we think Shanghai Hile Bio-Technology's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! And on top of that, its earnings per share have grown at an extremely impressive rate over the last three years. 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 Shanghai Hile Bio-Technology at this point in time. At Simply Wall St, we found 4 warning signs for Shanghai Hile Bio-Technology and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of Shanghai Hile Bio-Technology'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 that insiders are buying.

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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.