Soft earnings didn't appear to concern Zhuhai Comleader Information Science & Technology Co., Ltd.'s (SHSE:688175) shareholders over the last week. We did some digging, and we believe the earnings are stronger than they seem.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Zhuhai Comleader Information Science & Technology's profit was reduced by CN¥3.2m, 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 that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Zhuhai Comleader Information Science & Technology 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 Zhuhai Comleader Information Science & Technology.

An Unusual Tax Situation

Just as we noted the unusual items, we must inform you that Zhuhai Comleader Information Science & Technology received a tax benefit which contributed CN¥2.4m to the bottom line. This is of course a bit out of the ordinary, given it is more common for companies to be paying tax than receiving tax benefits! Of course, prima facie it's great to receive a tax benefit. However, the devil in the detail is that these kind of benefits only impact in the year they are booked, and are often one-off in nature. Assuming the tax benefit is not repeated every year, we could see its profitability drop noticeably, all else being equal. While we think it's good that the company has booked a tax benefit, it does mean that there's every chance the statutory profit will come in a lot higher than it would be if the income was adjusted for one-off factors.

Our Take On Zhuhai Comleader Information Science & Technology's Profit Performance

In its last report Zhuhai Comleader Information Science & Technology received a tax benefit which might make its profit look better than it really is on a underlying level. Having said that, it also had a unusual item reducing its profit. Based on these factors, it's hard to tell if Zhuhai Comleader Information Science & Technology's profits are a reasonable reflection of its underlying profitability. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. When we did our research, we found 3 warning signs for Zhuhai Comleader Information Science & Technology (1 can't be ignored!) that we believe deserve your full attention.

Our examination of Zhuhai Comleader Information Science & Technology has focussed on certain factors that can make its earnings look better than they are. 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. 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.