Mudanjiang Hengfeng PaperLtd's (SHSE:600356) Solid Earnings May Rest On Weak Foundations

Mudanjiang Hengfeng Paper Co.,Ltd's (SHSE:600356) healthy profit numbers didn't contain any surprises for investors. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

See our latest analysis for Mudanjiang Hengfeng PaperLtd

How Do Unusual Items Influence Profit?

To properly understand Mudanjiang Hengfeng PaperLtd's profit results, we need to consider the CN¥17m gain attributed to unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And that's as you'd expect, given these boosts are described as 'unusual'. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Mudanjiang Hengfeng PaperLtd.

Our Take On Mudanjiang Hengfeng PaperLtd's Profit Performance

Arguably, Mudanjiang Hengfeng PaperLtd's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Mudanjiang Hengfeng PaperLtd's statutory profits are better than its underlying earnings power. The good news is that, its earnings per share increased by 7.0% in 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. If you'd like to know more about Mudanjiang Hengfeng PaperLtd as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that Mudanjiang Hengfeng PaperLtd has 1 warning sign and it would be unwise to ignore this.

Today we've zoomed in on a single data point to better understand the nature of Mudanjiang Hengfeng PaperLtd'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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.