Soft earnings didn't appear to concern Gansu Guofang Industry & Trade (Group) Co., Ltd.'s (SHSE:601086) shareholders over the last week. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Gansu Guofang Industry & Trade (Group)'s profit was reduced by CN¥25m, due to unusual items, over the last year. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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. If Gansu Guofang Industry & Trade (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 Gansu Guofang Industry & Trade (Group).

Our Take On Gansu Guofang Industry & Trade (Group)'s Profit Performance

Unusual items (expenses) detracted from Gansu Guofang Industry & Trade (Group)'s earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Gansu Guofang Industry & Trade (Group)'s statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over the last year. 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 while earnings quality is important, it's equally important to consider the risks facing Gansu Guofang Industry & Trade (Group) at this point in time. To that end, you should learn about the 3 warning signs we've spotted with Gansu Guofang Industry & Trade (Group) (including 1 which is a bit concerning).

This note has only looked at a single factor that sheds light on the nature of Gansu Guofang Industry & Trade (Group)'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.