Soft earnings didn't appear to concern Chaowei Power Holdings Limited's (HKG:951) shareholders over the last week. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

Check out our latest analysis for Chaowei Power Holdings

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Chaowei Power Holdings' profit was reduced by CN¥393m, 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. 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 Chaowei Power Holdings 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 Chaowei Power Holdings.

Our Take On Chaowei Power Holdings' Profit Performance

Because unusual items detracted from Chaowei Power Holdings' 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 Chaowei Power Holdings' statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at 25% per year over the last three years. 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 Chaowei Power Holdings, you'd also look into what risks it is currently facing. For example - Chaowei Power Holdings has 5 warning signs we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Chaowei Power Holdings' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 that insiders are buying.

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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.