Soft earnings didn't appear to concern Shanghai Huili Building Materials Co., Ltd.'s (SHSE:900939) shareholders over the last week. We did some digging, and we believe the earnings are stronger than they seem.

Check out our latest analysis for Shanghai Huili Building Materials

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Shanghai Huili Building Materials' profit was reduced by CN¥1.4m, due to unusual items, over the last year. 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. Assuming those unusual expenses don't come up again, we'd therefore expect Shanghai Huili Building Materials 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 Shanghai Huili Building Materials.

Our Take On Shanghai Huili Building Materials' Profit Performance

Unusual items (expenses) detracted from Shanghai Huili Building Materials' earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Shanghai Huili Building Materials' statutory profit actually understates its earnings potential! Better yet, its EPS are growing strongly, which is nice to see. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Case in point: We've spotted 1 warning sign for Shanghai Huili Building Materials you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Shanghai Huili Building Materials' 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. 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 that insiders are buying 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.