Soft earnings didn't appear to concern Top Resource Energy Co., Ltd.'s (SZSE:300332) shareholders over the last week. We did some digging, and we believe the earnings are stronger than they seem.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Top Resource Energy's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥66m due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. 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. If Top Resource Energy doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Top Resource Energy's Profit Performance

Because unusual items detracted from Top Resource Energy's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Top Resource Energy's statutory profit actually understates its earnings potential! And the EPS is up 47% annually, 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. In terms of investment risks, we've identified 3 warning signs with Top Resource Energy, and understanding these should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Top Resource Energy's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.