Wenling Zhejiang Measuring and Cutting Tools Trading Centre Company Limited (HKG:1379) announced strong profits, but the stock was stagnant. Our analysis suggests that shareholders have noticed something concerning in the numbers.

View our latest analysis for Wenling Zhejiang Measuring and Cutting Tools Trading Centre

The Impact Of Unusual Items On Profit

For anyone who wants to understand Wenling Zhejiang Measuring and Cutting Tools Trading Centre's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥20m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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. We can see that Wenling Zhejiang Measuring and Cutting Tools Trading Centre's positive unusual items were quite significant relative to its profit in the year to December 2021. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger 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 Wenling Zhejiang Measuring and Cutting Tools Trading Centre.

Our Take On Wenling Zhejiang Measuring and Cutting Tools Trading Centre's Profit Performance

As previously mentioned, Wenling Zhejiang Measuring and Cutting Tools Trading Centre's large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. For this reason, we think that Wenling Zhejiang Measuring and Cutting Tools Trading Centre's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. The good news is that, its earnings per share increased by 27% in the last year. 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. To help with this, we've discovered 5 warning signs (1 doesn't sit too well with us!) that you ought to be aware of before buying any shares in Wenling Zhejiang Measuring and Cutting Tools Trading Centre.

Today we've zoomed in on a single data point to better understand the nature of Wenling Zhejiang Measuring and Cutting Tools Trading Centre'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 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.