The recent earnings posted by Wanbangde Pharmaceutical Holding Group Co., Ltd. (SZSE:002082) were solid, but the stock didn't move as much as we expected. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Wanbangde Pharmaceutical Holding Group's profit received a boost of CN¥12m in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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 Wanbangde Pharmaceutical Holding Group.

Our Take On Wanbangde Pharmaceutical Holding Group's Profit Performance

Arguably, Wanbangde Pharmaceutical Holding Group's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Wanbangde Pharmaceutical Holding Group's true underlying earnings power is actually less than its statutory profit. The silver lining is that its EPS growth over the last year has been really wonderful, even if it's not a perfect measure. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. So while earnings quality is important, it's equally important to consider the risks facing Wanbangde Pharmaceutical Holding Group at this point in time. Case in point: We've spotted 3 warning signs for Wanbangde Pharmaceutical Holding Group you should be mindful of and 1 of these bad boys is a bit concerning.

This note has only looked at a single factor that sheds light on the nature of Wanbangde Pharmaceutical Holding Group'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 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.