The market was pleased with the recent earnings report from Ningbo Shenglong Automotive Powertrain System Co.,Ltd. (SHSE:603178), despite the profit numbers being soft. Our analysis suggests that investors may have noticed some promising signs beyond the statutory profit figures.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Ningbo Shenglong Automotive Powertrain SystemLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥10m due 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, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Ningbo Shenglong Automotive Powertrain SystemLtd to produce a higher profit next year, all else being equal.

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 Ningbo Shenglong Automotive Powertrain SystemLtd's Profit Performance

Because unusual items detracted from Ningbo Shenglong Automotive Powertrain SystemLtd'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 Ningbo Shenglong Automotive Powertrain SystemLtd's statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over the last year. 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 Ningbo Shenglong Automotive Powertrain SystemLtd at this point in time. Case in point: We've spotted 1 warning sign for Ningbo Shenglong Automotive Powertrain SystemLtd you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Ningbo Shenglong Automotive Powertrain SystemLtd'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.