Soft earnings didn't appear to concern Liaoning Chengda Biotechnology Co.,Ltd.'s (SHSE:688739) shareholders over the last week. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

How Do Unusual Items Influence Profit?

To properly understand Liaoning Chengda BiotechnologyLtd's profit results, we need to consider the CN¥99m expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Liaoning Chengda BiotechnologyLtd to produce a higher profit next year, all else being equal.

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 Liaoning Chengda BiotechnologyLtd's Profit Performance

Because unusual items detracted from Liaoning Chengda BiotechnologyLtd's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Liaoning Chengda BiotechnologyLtd'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 Liaoning Chengda BiotechnologyLtd at this point in time. Every company has risks, and we've spotted 3 warning signs for Liaoning Chengda BiotechnologyLtd (of which 1 is a bit concerning!) you should know about.

This note has only looked at a single factor that sheds light on the nature of Liaoning Chengda BiotechnologyLtd'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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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.