Despite posting strong earnings, Great Wall Pan Asia Holdings Limited's (HKG:583) stock didn't move much over the last week. We decided to have a deeper look, and we believe that investors might be worried about several concerning factors that we found.

See our latest analysis for Great Wall Pan Asia Holdings

Operating Revenue Or Not?

Most companies divide classify their revenue as either 'operating revenue', which comes from normal operations, and other revenue, which could include government grants, for example. Oftentimes, non-operating revenue spikes are not repeated, so it makes sense to be cautious where non-operating revenue has made a very large contribution to total profit. Importantly, the non-operating revenue often comes without associated ongoing costs, so it can boost profit by letting it fall straight to the bottom line, making the operating business seem better than it really is. It's worth noting that Great Wall Pan Asia Holdings saw a big increase in non-operating revenue over the last year. In fact, our data indicates that non-operating revenue increased from HK$57.7m to HK$774.3m. The high levels of non-operating revenue are problematic because if (and when) they do not repeat, then overall revenue (and profitability) of the firm will fall. Sometimes, you can get a better idea of the underlying earnings potential of a company by excluding unusual boosts to non-operating revenue.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Great Wall Pan Asia Holdings.

How Do Unusual Items Influence Profit?

Alongside that spike in non-operating revenue, it's also important to note that Great Wall Pan Asia Holdings'profit was boosted by unusual items worth HK$93m in the last twelve months. 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 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 Great Wall Pan Asia Holdings doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On Great Wall Pan Asia Holdings' Profit Performance

In its last report Great Wall Pan Asia Holdings benefitted from a spike in non-operating revenue which may have boosted its profit in a way that may be no more sustainable than low quality coal mining. And on top of that, it also saw an unusual item boost its profit, suggesting that next year might see a lower profit number, if these events are not repeated and everything else is equal. For the reasons mentioned above, we think that a perfunctory glance at Great Wall Pan Asia Holdings' statutory profits might make it look better than it really is on an underlying level. If you'd like to know more about Great Wall Pan Asia Holdings as a business, it's important to be aware of any risks it's facing. Our analysis shows 3 warning signs for Great Wall Pan Asia Holdings (2 make us uncomfortable!) and we strongly recommend you look at these before investing.

Our examination of Great Wall Pan Asia Holdings has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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. 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.