Shareholders appeared unconcerned with Songz Automobile Air Conditioning Co., Ltd's (SZSE:002454) lackluster earnings report last week. We did some digging, and we believe the earnings are stronger than they seem.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Songz Automobile Air Conditioning's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥22m due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Songz Automobile Air Conditioning to produce a higher profit next year, all else being equal.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Songz Automobile Air Conditioning's Profit Performance

Unusual items (expenses) detracted from Songz Automobile Air Conditioning's earnings over the last year, but we might see an improvement next year. Because of this, we think Songz Automobile Air Conditioning's earnings potential is at least as good as it seems, and maybe even better! Unfortunately, though, its earnings per share actually fell back over the last year. 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 Songz Automobile Air Conditioning at this point in time. In terms of investment risks, we've identified 1 warning sign with Songz Automobile Air Conditioning, and understanding this should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Songz Automobile Air Conditioning'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.