The recent earnings posted by Mudanjiang Hengfeng Paper Co.,Ltd (SHSE:600356) were solid, but the stock didn't move as much as we expected. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Mudanjiang Hengfeng PaperLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥17m 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. 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 that's as you'd expect, given these boosts are described as 'unusual'. If Mudanjiang Hengfeng PaperLtd 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 Mudanjiang Hengfeng PaperLtd.

Our Take On Mudanjiang Hengfeng PaperLtd's Profit Performance

We'd posit that Mudanjiang Hengfeng PaperLtd's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Mudanjiang Hengfeng PaperLtd's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 7.0% EPS growth 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Case in point: We've spotted 1 warning sign for Mudanjiang Hengfeng PaperLtd you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Mudanjiang Hengfeng PaperLtd'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 that insiders are buying.

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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.