Here's Why We Don't Think DYNAM JAPAN HOLDINGS's (HKG:6889) Statutory Earnings Reflect Its Underlying Earnings Potential

As a general rule, we think profitable companies are less risky than companies that lose money. That said, the current statutory profit is not always a good guide to a company's underlying profitability. In this article, we'll look at how useful this year's statutory profit is, when analysing DYNAM JAPAN HOLDINGS (HKG:6889).

It's good to see that over the last twelve months DYNAM JAPAN HOLDINGS made a profit of JP¥4.76b on revenue of JP¥113.9b. The chart below shows that both revenue and profit have declined over the last three years.

See our latest analysis for DYNAM JAPAN HOLDINGS

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. This article will focus on the impact unusual items have had on DYNAM JAPAN HOLDINGS' statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of DYNAM JAPAN HOLDINGS.

The Impact Of Unusual Items On Profit

To properly understand DYNAM JAPAN HOLDINGS' profit results, we need to consider the JP¥2.5b 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. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And that's as you'd expect, given these boosts are described as 'unusual'. DYNAM JAPAN HOLDINGS had a rather significant contribution from unusual items relative to its profit to September 2020. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On DYNAM JAPAN HOLDINGS' Profit Performance

As previously mentioned, DYNAM JAPAN HOLDINGS' large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. For this reason, we think that DYNAM JAPAN HOLDINGS' statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. In further bad news, its earnings per share decreased in the last year. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. At Simply Wall St, we found 4 warning signs for DYNAM JAPAN HOLDINGS and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of DYNAM JAPAN HOLDINGS' profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. 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.

When trading DYNAM JAPAN HOLDINGS or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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