The recent earnings posted by Poly Plastic Masterbatch (SuZhou) Co.,Ltd (SZSE:300905) were solid, but the stock didn't move as much as we expected. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Poly Plastic Masterbatch (SuZhou)Ltd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥18m worth of unusual items. 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. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Poly Plastic Masterbatch (SuZhou)Ltd.

Our Take On Poly Plastic Masterbatch (SuZhou)Ltd's Profit Performance

We'd posit that Poly Plastic Masterbatch (SuZhou)Ltd's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Poly Plastic Masterbatch (SuZhou)Ltd's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 11% EPS growth 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Case in point: We've spotted 3 warning signs for Poly Plastic Masterbatch (SuZhou)Ltd you should be mindful of and 2 of them make us uncomfortable.

This note has only looked at a single factor that sheds light on the nature of Poly Plastic Masterbatch (SuZhou)Ltd'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.