Inner Mongolia Yuan Xing Energy Company Limited's (SZSE:000683) stock was strong despite it releasing a soft earnings report last week. However, we think the company is showing some signs that things are more promising than they seem.

How Do Unusual Items Influence Profit?

To properly understand Inner Mongolia Yuan Xing Energy's profit results, we need to consider the CN¥1.1b 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. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. If Inner Mongolia Yuan Xing Energy 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 Inner Mongolia Yuan Xing Energy's Profit Performance

Because unusual items detracted from Inner Mongolia Yuan Xing Energy'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 Inner Mongolia Yuan Xing Energy's earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share have grown at an extremely impressive rate over the last three years. 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. So while earnings quality is important, it's equally important to consider the risks facing Inner Mongolia Yuan Xing Energy at this point in time. In terms of investment risks, we've identified 3 warning signs with Inner Mongolia Yuan Xing Energy, and understanding these should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Inner Mongolia Yuan Xing Energy's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. 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.