A lackluster earnings announcement from Mudanjiang Hengfeng Paper Co.,Ltd (SHSE:600356) last week didn't sink the stock price. We think that investors are worried about some weaknesses underlying the earnings.

See our latest analysis for Mudanjiang Hengfeng PaperLtd

The Impact Of Unusual Items On Profit

To properly understand Mudanjiang Hengfeng PaperLtd's profit results, we need to consider the CN¥14m 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. 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. 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 Mudanjiang Hengfeng PaperLtd.

Our Take On Mudanjiang Hengfeng PaperLtd's Profit Performance

Arguably, Mudanjiang Hengfeng PaperLtd's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Mudanjiang Hengfeng PaperLtd's statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 17% over the last three years. 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. If you want to do dive deeper into Mudanjiang Hengfeng PaperLtd, you'd also look into what risks it is currently facing. While conducting our analysis, we found that Mudanjiang Hengfeng PaperLtd has 3 warning signs and it would be unwise to ignore them.

Today we've zoomed in on a single data point to better understand the nature of Mudanjiang Hengfeng PaperLtd'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.