The market wasn't impressed with the soft earnings from Zhejiang Zhongcheng Packing Material Co., Ltd. (SZSE:002522) recently. Our analysis has found some reasons to be concerned, beyond the weak headline numbers.

The Impact Of Unusual Items On Profit

To properly understand Zhejiang Zhongcheng Packing Material's profit results, we need to consider the CN¥11m gain attributed to unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Zhejiang Zhongcheng Packing Material.

Our Take On Zhejiang Zhongcheng Packing Material's Profit Performance

We'd posit that Zhejiang Zhongcheng Packing Material's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Zhejiang Zhongcheng Packing Material's statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. You'd be interested to know, that we found 1 warning sign for Zhejiang Zhongcheng Packing Material and you'll want to know about this.

Today we've zoomed in on a single data point to better understand the nature of Zhejiang Zhongcheng Packing Material'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.