The market rallied behind Fujian Minfa Aluminium Inc.'s (SZSE:002578) stock, leading do a rise in the share price after its recent weak earnings report. While shareholders may be willing to overlook soft profit numbers, we believe that they should also be taking into account some other factors which may be cause for concern.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Fujian Minfa Aluminium's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥3.1m worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. If Fujian Minfa Aluminium 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 Fujian Minfa Aluminium.

Our Take On Fujian Minfa Aluminium's Profit Performance

Arguably, Fujian Minfa Aluminium's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Fujian Minfa Aluminium's statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. 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. So while earnings quality is important, it's equally important to consider the risks facing Fujian Minfa Aluminium at this point in time. You'd be interested to know, that we found 2 warning signs for Fujian Minfa Aluminium and you'll want to know about them.

This note has only looked at a single factor that sheds light on the nature of Fujian Minfa Aluminium'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 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.