The market for Zhongzhi Pharmaceutical Holdings Limited's (HKG:3737) shares didn't move much after it posted weak earnings recently. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

See our latest analysis for Zhongzhi Pharmaceutical Holdings

The Impact Of Unusual Items On Profit

To properly understand Zhongzhi Pharmaceutical Holdings' profit results, we need to consider the CN¥40m expense attributed to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. 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. In the twelve months to December 2021, Zhongzhi Pharmaceutical Holdings had a big unusual items expense. As a result, we can surmise that the unusual items made its statutory profit significantly weaker than it would otherwise be.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Zhongzhi Pharmaceutical Holdings.

Our Take On Zhongzhi Pharmaceutical Holdings' Profit Performance

As we discussed above, we think the significant unusual expense will make Zhongzhi Pharmaceutical Holdings' statutory profit lower than it would otherwise have been. Because of this, we think Zhongzhi Pharmaceutical Holdings' underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! On the other hand, its EPS actually shrunk in the last twelve months. 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 4 warning signs for Zhongzhi Pharmaceutical Holdings you should know about.

This note has only looked at a single factor that sheds light on the nature of Zhongzhi Pharmaceutical Holdings' 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.