Shanghai Lianming Machinery Co., Ltd.'s (SHSE:603006) stock was strong despite it releasing a soft earnings report last week. We think that investors might be looking at some positive factors beyond the earnings numbers.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Shanghai Lianming Machinery's profit was reduced by CN¥35m, due to unusual items, over the last year. 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, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Shanghai Lianming Machinery to produce a higher profit next year, all else being equal.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Shanghai Lianming Machinery.

Our Take On Shanghai Lianming Machinery's Profit Performance

Because unusual items detracted from Shanghai Lianming Machinery'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 Lianming Machinery'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. If you'd like to know more about Shanghai Lianming Machinery as a business, it's important to be aware of any risks it's facing. To that end, you should learn about the 4 warning signs we've spotted with Shanghai Lianming Machinery (including 1 which is a bit concerning).

This note has only looked at a single factor that sheds light on the nature of Shanghai Lianming Machinery'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.