Zhongrun Resources Investment Corporation (SZSE:000506) announced a healthy earnings result recently, and the market rewarded it with a strong uplift in the stock price. This reaction by the market reaction is understandable when looking at headline profits and we have found some further encouraging factors.

How Do Unusual Items Influence Profit?

To properly understand Zhongrun Resources Investment's profit results, we need to consider the CN¥17m expense attributed 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, after all, that's exactly what the accounting terminology implies. If Zhongrun Resources Investment doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Zhongrun Resources Investment.

Our Take On Zhongrun Resources Investment's Profit Performance

Because unusual items detracted from Zhongrun Resources Investment's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Zhongrun Resources Investment's statutory profit actually understates its earnings potential! And it's also positive that the company showed enough improvement to book a profit this year, after 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. If you'd like to know more about Zhongrun Resources Investment as a business, it's important to be aware of any risks it's facing. Be aware that Zhongrun Resources Investment is showing 2 warning signs in our investment analysis and 1 of those is significant...

Today we've zoomed in on a single data point to better understand the nature of Zhongrun Resources Investment'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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.