CSC Holdings Limited (HKG:235) announced a healthy earnings result recently, and the market rewarded it with a strong uplift in the stock price. Looking deeper at the numbers, we found several encouraging factors beyond the headline profit numbers.

How Do Unusual Items Influence Profit?

To properly understand CSC Holdings' profit results, we need to consider the HK$15m expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect CSC Holdings 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 CSC Holdings.

Our Take On CSC Holdings' Profit Performance

Because unusual items detracted from CSC Holdings' earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think CSC Holdings' earnings potential is at least as good as it seems, and maybe even better! 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Case in point: We've spotted 1 warning sign for CSC Holdings you should be aware of.

This note has only looked at a single factor that sheds light on the nature of CSC Holdings' 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.