The market was pleased with the recent earnings report from Black Peony (Group) Co., Ltd. (SHSE:600510), despite the profit numbers being soft. However, we think the company is showing some signs that things are more promising than they seem.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Black Peony (Group)'s profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥24m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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. Assuming those unusual expenses don't come up again, we'd therefore expect Black Peony (Group) 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 Black Peony (Group).

Our Take On Black Peony (Group)'s Profit Performance

Because unusual items detracted from Black Peony (Group)'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 Black Peony (Group)'s statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you want to do dive deeper into Black Peony (Group), you'd also look into what risks it is currently facing. Be aware that Black Peony (Group) is showing 5 warning signs in our investment analysis and 3 of those are potentially serious...

Today we've zoomed in on a single data point to better understand the nature of Black Peony (Group)'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.