A lackluster earnings announcement from Shanghai Fudan-Zhangjiang Bio-Pharmaceutical Co.,Ltd. (HKG:1349) last week didn't sink the stock price. We think that investors are worried about some weaknesses underlying the earnings.

The Impact Of Unusual Items On Profit

To properly understand Shanghai Fudan-Zhangjiang Bio-PharmaceuticalLtd's profit results, we need to consider the CN¥12m gain attributed to unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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'. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Shanghai Fudan-Zhangjiang Bio-PharmaceuticalLtd.

Our Take On Shanghai Fudan-Zhangjiang Bio-PharmaceuticalLtd's Profit Performance

We'd posit that Shanghai Fudan-Zhangjiang Bio-PharmaceuticalLtd's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Shanghai Fudan-Zhangjiang Bio-PharmaceuticalLtd's true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased 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. If you want to do dive deeper into Shanghai Fudan-Zhangjiang Bio-PharmaceuticalLtd, you'd also look into what risks it is currently facing. To that end, you should learn about the 2 warning signs we've spotted with Shanghai Fudan-Zhangjiang Bio-PharmaceuticalLtd (including 1 which is a bit unpleasant).

This note has only looked at a single factor that sheds light on the nature of Shanghai Fudan-Zhangjiang Bio-PharmaceuticalLtd's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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 with significant insider holdings 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.