When companies post strong earnings, the stock generally performs well, just like Guizhou Chitianhua Co.,Ltd.'s (SHSE:600227) stock has recently. We did some digging and found some further encouraging factors that investors will like.

How Do Unusual Items Influence Profit?

To properly understand Guizhou ChitianhuaLtd's profit results, we need to consider the CN¥16m expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Guizhou ChitianhuaLtd to produce a higher profit next year, all else being equal.

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

Our Take On Guizhou ChitianhuaLtd's Profit Performance

Because unusual items detracted from Guizhou ChitianhuaLtd's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Guizhou ChitianhuaLtd's earnings potential is at least as good as it seems, and maybe even better! And it's also positive that the company showed enough improvement to book a profit this year, after losing money 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. While it's very important to consider the profit and loss statement, you can also learn a lot about a company by looking at its balance sheet. You can see our latest analysis on Guizhou ChitianhuaLtd's balance sheet health here.

Today we've zoomed in on a single data point to better understand the nature of Guizhou ChitianhuaLtd'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.