Cinda Real Estate Co., Ltd.'s (SHSE:600657) stock showed strength, with investors undeterred by its 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 Cinda Real Estate's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥120m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. Which is hardly surprising, given the name. If Cinda Real Estate 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 Cinda Real Estate.

Our Take On Cinda Real Estate's Profit Performance

Arguably, Cinda Real Estate's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Cinda Real Estate's true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down 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. So while earnings quality is important, it's equally important to consider the risks facing Cinda Real Estate at this point in time. For instance, we've identified 5 warning signs for Cinda Real Estate (2 don't sit too well with us) you should be familiar with.

Today we've zoomed in on a single data point to better understand the nature of Cinda Real Estate'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. 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.