Last week's earnings announcement from Qingdao Citymedia Co,. Ltd. (SHSE:600229) was disappointing to investors, with a sluggish profit figure. We did some further digging and think they have a few more reasons to be concerned beyond the statutory profit.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Qingdao Citymedia Co's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥105m worth of unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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. Qingdao Citymedia Co had a rather significant contribution from unusual items relative to its profit to September 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Qingdao Citymedia Co.

Our Take On Qingdao Citymedia Co's Profit Performance

As we discussed above, we think the significant positive unusual item makes Qingdao Citymedia Co's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Qingdao Citymedia Co's underlying earnings power is lower than its statutory profit. But at least holders can take some solace from the 31% per annum growth in EPS for the last three. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. In terms of investment risks, we've identified 2 warning signs with Qingdao Citymedia Co, and understanding these should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Qingdao Citymedia Co'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. 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.