The market was pleased with the recent earnings report from Ziff Davis, Inc. (NASDAQ:ZD), despite the profit numbers being soft. We think that investors might be looking at some positive factors beyond the earnings numbers.

View our latest analysis for Ziff Davis

How Do Unusual Items Influence Profit?

To properly understand Ziff Davis' profit results, we need to consider the US$74m expense attributed to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. 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 Ziff Davis 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 Ziff Davis' Profit Performance

Unusual items (expenses) detracted from Ziff Davis' earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Ziff Davis' statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at an extremely impressive rate over the last three years. 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. So while earnings quality is important, it's equally important to consider the risks facing Ziff Davis at this point in time. At Simply Wall St, we found 1 warning sign for Ziff Davis and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of Ziff Davis' 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 with high insider ownership.

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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.