The recent earnings posted by Cec Environmental Protection Co.,Ltd (SZSE:300172) were solid, but the stock didn't move as much as we expected. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Cec Environmental ProtectionLtd's profit received a boost of CN¥6.9m in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. If Cec Environmental ProtectionLtd 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 Cec Environmental ProtectionLtd.

Our Take On Cec Environmental ProtectionLtd's Profit Performance

Arguably, Cec Environmental ProtectionLtd's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Cec Environmental ProtectionLtd's statutory profits are better than its underlying earnings power. The good news is that, its earnings per share increased by 14% 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Every company has risks, and we've spotted 2 warning signs for Cec Environmental ProtectionLtd (of which 1 is concerning!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of Cec Environmental ProtectionLtd'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. 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.