The market shrugged off Zhejiang Runyang New Material Technology Co., Ltd.'s (SZSE:300920) solid earnings report. We think that investors might be worried about some concerning underlying factors.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Zhejiang Runyang New Material Technology's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥3.4m 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 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. If Zhejiang Runyang New Material Technology doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Zhejiang Runyang New Material Technology.

Our Take On Zhejiang Runyang New Material Technology's Profit Performance

We'd posit that Zhejiang Runyang New Material Technology's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Zhejiang Runyang New Material Technology's true underlying earnings power is actually less than its statutory profit. The good news is that, its earnings per share increased by 31% 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. If you want to do dive deeper into Zhejiang Runyang New Material Technology, you'd also look into what risks it is currently facing. Be aware that Zhejiang Runyang New Material Technology is showing 2 warning signs in our investment analysis and 1 of those can't be ignored...

This note has only looked at a single factor that sheds light on the nature of Zhejiang Runyang New Material Technology'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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.