The market for Fujian Longking Co., Ltd.'s (SHSE:600388) shares didn't move much after it posted weak earnings recently. We did some digging, and we believe the earnings are stronger than they seem.

How Do Unusual Items Influence Profit?

To properly understand Fujian Longking's profit results, we need to consider the CN¥308m 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 that's hardly a surprise given these line items are considered unusual. If Fujian Longking doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

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 Fujian Longking's Profit Performance

Because unusual items detracted from Fujian Longking'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 Fujian Longking's statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in the last twelve months. 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. If you want to do dive deeper into Fujian Longking, you'd also look into what risks it is currently facing. At Simply Wall St, we found 3 warning signs for Fujian Longking and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of Fujian Longking's profit. But there are plenty of other ways to inform your opinion of a company. 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. 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.