Statutory Profit Doesn't Reflect How Good DYNAM JAPAN HOLDINGS' (HKG:6889) Earnings Are

Even though DYNAM JAPAN HOLDINGS Co., Ltd. (HKG:6889 ) posted strong earnings, investors appeared to be underwhelmed. Our analysis says that investors should be optimistic, as the strong profit is built on solid foundations.

Check out our latest analysis for DYNAM JAPAN HOLDINGS

The Impact Of Unusual Items On Profit

Importantly, our data indicates that DYNAM JAPAN HOLDINGS' profit was reduced by JP¥1.4b, 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. 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. If DYNAM JAPAN HOLDINGS doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of DYNAM JAPAN HOLDINGS.

Our Take On DYNAM JAPAN HOLDINGS' Profit Performance

Because unusual items detracted from DYNAM JAPAN HOLDINGS' earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that DYNAM JAPAN HOLDINGS' statutory profit actually understates its earnings potential! Furthermore, it has done a great job growing EPS over 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, DYNAM JAPAN HOLDINGS has 3 warning signs (and 2 which are a bit concerning) we think you should know about.

Today we've zoomed in on a single data point to better understand the nature of DYNAM JAPAN HOLDINGS' profit. 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 with significant insider holdings to be useful.

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.