Investors signalled that they were pleased with China 21st Century Education Group Limited's (HKG:1598) most recent earnings report. According to our analysis of the report, the strong headline profit numbers are supported by strong earnings fundamentals.

The Impact Of Unusual Items On Profit

To properly understand China 21st Century Education Group's profit results, we need to consider the CN¥12m expense attributed 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. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. If China 21st Century Education Group doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of China 21st Century Education Group.

Our Take On China 21st Century Education Group's Profit Performance

Unusual items (expenses) detracted from China 21st Century Education Group's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that China 21st Century Education Group's statutory profit actually understates its earnings potential! And the EPS is up 9.9% over the last twelve months. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you want to do dive deeper into China 21st Century Education Group, you'd also look into what risks it is currently facing. Be aware that China 21st Century Education Group is showing 4 warning signs in our investment analysis and 2 of those make us uncomfortable...

This note has only looked at a single factor that sheds light on the nature of China 21st Century Education Group'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 with high insider ownership.

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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.