Zhejiang Tiantai Xianghe Industrial Co.,Ltd.'s (SHSE:603500) robust recent earnings didn't do much to move the stock. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

Check out our latest analysis for Zhejiang Tiantai Xianghe IndustrialLtd

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Zhejiang Tiantai Xianghe IndustrialLtd's profit received a boost of CN¥6.3m in unusual items, over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. If Zhejiang Tiantai Xianghe IndustrialLtd 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 Zhejiang Tiantai Xianghe IndustrialLtd.

Our Take On Zhejiang Tiantai Xianghe IndustrialLtd's Profit Performance

We'd posit that Zhejiang Tiantai Xianghe IndustrialLtd's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Zhejiang Tiantai Xianghe IndustrialLtd's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 10% per annum growth in EPS for the last three. 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 Zhejiang Tiantai Xianghe IndustrialLtd at this point in time. When we did our research, we found 2 warning signs for Zhejiang Tiantai Xianghe IndustrialLtd (1 doesn't sit too well with us!) that we believe deserve your full attention.

Today we've zoomed in on a single data point to better understand the nature of Zhejiang Tiantai Xianghe IndustrialLtd'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. 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 that insiders are buying 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.