Shareholders appeared unconcerned with Ningbo Zhongbai Co., Ltd.'s (SHSE:600857) lackluster earnings report last week. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Ningbo Zhongbai's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥108m 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 that's hardly a surprise given these line items are considered unusual. Ningbo Zhongbai took a rather significant hit from unusual items in the year to December 2023. 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 Ningbo Zhongbai.

Our Take On Ningbo Zhongbai's Profit Performance

As we discussed above, we think the significant unusual expense will make Ningbo Zhongbai's statutory profit lower than it would otherwise have been. Based on this observation, we consider it possible that Ningbo Zhongbai's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at an extremely impressive rate over the last three years. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. While conducting our analysis, we found that Ningbo Zhongbai has 2 warning signs and it would be unwise to ignore them.

Today we've zoomed in on a single data point to better understand the nature of Ningbo Zhongbai'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. 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.