A lackluster earnings announcement from Fujian Longxi Bearing (Group) Co., Ltd (SHSE:600592) 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.

How Do Unusual Items Influence Profit?

To properly understand Fujian Longxi Bearing (Group)'s profit results, we need to consider the CN¥22m gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. 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 Fujian Longxi Bearing (Group).

Our Take On Fujian Longxi Bearing (Group)'s Profit Performance

Arguably, Fujian Longxi Bearing (Group)'s statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Fujian Longxi Bearing (Group)'s statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the last year. 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 Fujian Longxi Bearing (Group) at this point in time. At Simply Wall St, we found 1 warning sign for Fujian Longxi Bearing (Group) and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Fujian Longxi Bearing (Group)'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. 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 with significant insider holdings 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.