A lackluster earnings announcement from China Zhenhua (Group) Science & Technology Co., Ltd (SZSE:000733) last week didn't sink the stock price. We think that investors are worried about some weaknesses underlying the earnings.

How Do Unusual Items Influence Profit?

For anyone who wants to understand China Zhenhua (Group) Science & Technology's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥141m worth of unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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, after all, that's exactly what the accounting terminology implies. If China Zhenhua (Group) Science & Technology doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current 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 China Zhenhua (Group) Science & Technology's Profit Performance

We'd posit that China Zhenhua (Group) Science & Technology's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that China Zhenhua (Group) Science & Technology's statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in 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 if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Every company has risks, and we've spotted 1 warning sign for China Zhenhua (Group) Science & Technology you should know about.

This note has only looked at a single factor that sheds light on the nature of China Zhenhua (Group) Science & Technology'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.