The market seemed underwhelmed by last week's earnings announcement from Haibo Heavy Engineering Science and Technology Co., Ltd. (SZSE:300517) despite the healthy numbers. Our analysis suggests that shareholders might be missing some positive underlying factors in the earnings report.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Haibo Heavy Engineering Science and Technology's profit was reduced by CN¥5.4m, due to unusual items, over the last year. 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. If Haibo Heavy Engineering Science and Technology 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 Haibo Heavy Engineering Science and Technology.

Our Take On Haibo Heavy Engineering Science and Technology's Profit Performance

Unusual items (expenses) detracted from Haibo Heavy Engineering Science and Technology's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Haibo Heavy Engineering Science and Technology's statutory profit actually understates its earnings potential! And on top of that, its earnings per share increased by 21% 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For instance, we've identified 2 warning signs for Haibo Heavy Engineering Science and Technology (1 is a bit concerning) you should be familiar with.

Today we've zoomed in on a single data point to better understand the nature of Haibo Heavy Engineering Science and Technology'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.