A lackluster earnings announcement from Henan Jindan Lactic Acid Technology Co.,Ltd. (SZSE:300829) last week didn't sink the stock price. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Henan Jindan Lactic Acid TechnologyLtd's profit received a boost of CN¥21m in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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. 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 Henan Jindan Lactic Acid TechnologyLtd.

Our Take On Henan Jindan Lactic Acid TechnologyLtd's Profit Performance

Arguably, Henan Jindan Lactic Acid TechnologyLtd's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Henan Jindan Lactic Acid TechnologyLtd's true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased in the last year. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. To help with this, we've discovered 4 warning signs (1 is potentially serious!) that you ought to be aware of before buying any shares in Henan Jindan Lactic Acid TechnologyLtd.

This note has only looked at a single factor that sheds light on the nature of Henan Jindan Lactic Acid TechnologyLtd's profit. But there are plenty of other ways to inform your opinion of a company. 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.