The market was pleased with the recent earnings report from Zhejiang Zhengte Co., Ltd. (SZSE:001238), despite the profit numbers being soft. However, we think the company is showing some signs that things are more promising than they seem.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Zhejiang Zhengte's profit was reduced by CN¥19m, due to unusual items, over the last year. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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. In the twelve months to December 2023, Zhejiang Zhengte had a big unusual items expense. As a result, we can surmise that the unusual items made its statutory profit significantly weaker than it would otherwise be.

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 Zhejiang Zhengte's Profit Performance

As we discussed above, we think the significant unusual expense will make Zhejiang Zhengte's statutory profit lower than it would otherwise have been. Because of this, we think Zhejiang Zhengte's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! On the other hand, its EPS actually shrunk in the last twelve months. 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. If you'd like to know more about Zhejiang Zhengte as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that Zhejiang Zhengte has 2 warning signs and it would be unwise to ignore them.

This note has only looked at a single factor that sheds light on the nature of Zhejiang Zhengte's profit. But there are plenty of other ways to inform your opinion of a company. 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. 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.