Soft earnings didn't appear to concern Lafang China Co.,Ltd's (SHSE:603630) shareholders over the last week. We did some digging, and we believe the earnings are stronger than they seem.

How Do Unusual Items Influence Profit?

To properly understand Lafang ChinaLtd's profit results, we need to consider the CN¥31m expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. In the twelve months to June 2024, Lafang ChinaLtd had a big unusual items expense. As a result, we can surmise that the unusual items made its statutory profit significantly weaker than it would otherwise be.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Lafang ChinaLtd.

Our Take On Lafang ChinaLtd's Profit Performance

As we mentioned previously, the Lafang ChinaLtd's profit was hampered by unusual items in the last year. Based on this observation, we consider it possible that Lafang ChinaLtd's statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in the last twelve months. 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 Lafang ChinaLtd, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 4 warning signs for Lafang ChinaLtd (of which 1 doesn't sit too well with us!) you should know about.

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