The market wasn't impressed with the soft earnings from Xiamen R&T Plumbing Technology Co.,Ltd. (SZSE:002790) recently. We did some further digging and think they have a few more reasons to be concerned beyond the statutory profit.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Xiamen R&T Plumbing TechnologyLtd's profit received a boost of CN¥10m in unusual items, over the last year. 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 crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And, after all, that's exactly what the accounting terminology implies. If Xiamen R&T Plumbing TechnologyLtd doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Xiamen R&T Plumbing TechnologyLtd's Profit Performance

Arguably, Xiamen R&T Plumbing TechnologyLtd's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Xiamen R&T Plumbing TechnologyLtd's statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. 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. So while earnings quality is important, it's equally important to consider the risks facing Xiamen R&T Plumbing TechnologyLtd at this point in time. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of Xiamen R&T Plumbing TechnologyLtd.

Today we've zoomed in on a single data point to better understand the nature of Xiamen R&T Plumbing TechnologyLtd'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 with significant insider holdings 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.