Nihon Tokushu Toryo (TSE:4619) Strong Profits May Be Masking Some Underlying Issues

Nihon Tokushu Toryo Co., Ltd.'s (TSE:4619) 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.

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How Do Unusual Items Influence Profit?

Importantly, our data indicates that Nihon Tokushu Toryo's profit received a boost of JP¥823m in unusual items, over the last year. 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. Which is hardly surprising, given the name. If Nihon Tokushu Toryo doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Nihon Tokushu Toryo.

Our Take On Nihon Tokushu Toryo's Profit Performance

Arguably, Nihon Tokushu Toryo's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Nihon Tokushu Toryo's true underlying earnings power is actually less than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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. Just as investors must consider earnings, it is also important to take into account the strength of a company's balance sheet. We've done some analysis and you can see our take on Nihon Tokushu Toryo's balance sheet by clicking here.

Today we've zoomed in on a single data point to better understand the nature of Nihon Tokushu Toryo's 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 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.