The stock price didn't jump after Jiangsu Rongtai Industry Co., Ltd. (SHSE:605133) posted decent earnings last week. Our analysis showed that there are some concerning factors in the earnings that investors may be cautious of.

How Do Unusual Items Influence Profit?

To properly understand Jiangsu Rongtai Industry's profit results, we need to consider the CN¥20m gain attributed to 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. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

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 Jiangsu Rongtai Industry's Profit Performance

We'd posit that Jiangsu Rongtai Industry's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Jiangsu Rongtai Industry's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 10% per annum growth in EPS for the last three. 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 Jiangsu Rongtai Industry at this point in time. In terms of investment risks, we've identified 1 warning sign with Jiangsu Rongtai Industry, and understanding it should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Jiangsu Rongtai Industry'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. 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.