Investors were disappointed by CETC Chips Technology Inc.'s (SHSE:600877 ) latest earnings release. Our analysis has found some reasons to be concerned, beyond the weak headline numbers.

How Do Unusual Items Influence Profit?

For anyone who wants to understand CETC Chips Technology's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥30m 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. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. Which is hardly surprising, given the name. If CETC Chips Technology doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of CETC Chips Technology.

Our Take On CETC Chips Technology's Profit Performance

Arguably, CETC Chips Technology's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that CETC Chips Technology's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 5.6% per annum growth in EPS for the last three. 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. While earnings are important, another area to consider is the balance sheet. We've done some analysis and you can see our take on CETC Chips Technology's balance sheet by clicking here.

Today we've zoomed in on a single data point to better understand the nature of CETC Chips Technology's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.