Last week's profit announcement from VATS Liquor Chain Store Management Joint Stock Co., Ltd. (SZSE:300755) was underwhelming for investors, despite headline numbers being robust. Our analysis uncovered some concerning factors that we believe the market might be paying attention to.

How Do Unusual Items Influence Profit?

For anyone who wants to understand VATS Liquor Chain Store Management's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥66m worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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 VATS Liquor Chain Store Management doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

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 VATS Liquor Chain Store Management's Profit Performance

Arguably, VATS Liquor Chain Store Management's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that VATS Liquor Chain Store Management's true underlying earnings power is actually less than its statutory profit. The good news is that, its earnings per share increased by 23% in 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Case in point: We've spotted 2 warning signs for VATS Liquor Chain Store Management you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of VATS Liquor Chain Store Management's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 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.