Shareholders appeared unconcerned with Shanghai Fosun Pharmaceutical (Group) Co., Ltd.'s (SHSE:600196) lackluster earnings report last week. We did some digging, and we believe the earnings are stronger than they seem.

The Impact Of Unusual Items On Profit

To properly understand Shanghai Fosun Pharmaceutical (Group)'s profit results, we need to consider the CN¥416m expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. If Shanghai Fosun Pharmaceutical (Group) doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming 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 Shanghai Fosun Pharmaceutical (Group)'s Profit Performance

Because unusual items detracted from Shanghai Fosun Pharmaceutical (Group)'s earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Shanghai Fosun Pharmaceutical (Group)'s earnings potential is at least as good as it seems, and maybe even better! On the other hand, its EPS actually shrunk in the last twelve months. 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. So while earnings quality is important, it's equally important to consider the risks facing Shanghai Fosun Pharmaceutical (Group) 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 Shanghai Fosun Pharmaceutical (Group).

This note has only looked at a single factor that sheds light on the nature of Shanghai Fosun Pharmaceutical (Group)'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. 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.