The market shrugged off Qijing Machinery Co., Ltd.'s (SHSE:603677) solid earnings report. We did some digging and believe investors may be worried about some underlying factors in the report.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Qijing Machinery's profit received a boost of CN¥7.7m in unusual items, over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. If Qijing Machinery doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Qijing Machinery.

Our Take On Qijing Machinery's Profit Performance

Arguably, Qijing Machinery's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Qijing Machinery's true underlying earnings power is actually less than its statutory profit. The good news is that its earnings per share increased slightly 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. To that end, you should learn about the 2 warning signs we've spotted with Qijing Machinery (including 1 which is significant).

Today we've zoomed in on a single data point to better understand the nature of Qijing Machinery'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. 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 with significant insider holdings 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.