Shareholders appeared unconcerned with Tongwei Co.,Ltd's (SHSE:600438) lackluster earnings report last week. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

How Do Unusual Items Influence Profit?

For anyone who wants to understand TongweiLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥5.2b due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. If TongweiLtd 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 TongweiLtd's Profit Performance

Unusual items (expenses) detracted from TongweiLtd's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that TongweiLtd'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'd like to know more about TongweiLtd as a business, it's important to be aware of any risks it's facing. To that end, you should learn about the 3 warning signs we've spotted with TongweiLtd (including 1 which shouldn't be ignored).

This note has only looked at a single factor that sheds light on the nature of TongweiLtd'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. 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 that insiders are buying 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.