When companies post strong earnings, the stock generally performs well, just like Shanghai SK Petroleum & Chemical Equipment Corporation Ltd.'s (SZSE:002278) stock has recently. We have done some analysis, and we found several positive factors beyond the profit numbers.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Shanghai SK Petroleum & Chemical Equipment's profit was reduced by CN¥5.9m, 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. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. 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 SK Petroleum & Chemical Equipment 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 SK Petroleum & Chemical Equipment.

Our Take On Shanghai SK Petroleum & Chemical Equipment's Profit Performance

Because unusual items detracted from Shanghai SK Petroleum & Chemical Equipment'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 Shanghai SK Petroleum & Chemical Equipment's earnings potential is at least as good as it seems, and maybe even better! And one can definitely find a positive in the fact that it made a profit this year, despite 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. 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. While conducting our analysis, we found that Shanghai SK Petroleum & Chemical Equipment has 1 warning sign and it would be unwise to ignore it.

This note has only looked at a single factor that sheds light on the nature of Shanghai SK Petroleum & Chemical Equipment'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. 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.