The market for Zhejiang Zhongcheng Packing Material Co., Ltd.'s (SZSE:002522) shares didn't move much after it posted weak earnings recently. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

Check out our latest analysis for Zhejiang Zhongcheng Packing Material

How Do Unusual Items Influence Profit?

To properly understand Zhejiang Zhongcheng Packing Material's profit results, we need to consider the CN¥35m 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. If Zhejiang Zhongcheng Packing Material doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

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

Because unusual items detracted from Zhejiang Zhongcheng Packing Material's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Zhejiang Zhongcheng Packing Material's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at an extremely impressive rate over the last three years. 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 Zhejiang Zhongcheng Packing Material at this point in time. You'd be interested to know, that we found 3 warning signs for Zhejiang Zhongcheng Packing Material and you'll want to know about them.

This note has only looked at a single factor that sheds light on the nature of Zhejiang Zhongcheng Packing Material's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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. 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.