Nishikawa Rubber's (TSE:5161) Strong Earnings Are Of Good Quality

Nishikawa Rubber Co., Ltd. (TSE:5161) just reported healthy earnings but the stock price didn't move much. Our analysis suggests that investors might be missing some promising details.

View our latest analysis for Nishikawa Rubber

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Nishikawa Rubber's profit was reduced by JP¥850m, due to unusual items, over the last year. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. If Nishikawa Rubber 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 Nishikawa Rubber.

Our Take On Nishikawa Rubber's Profit Performance

Unusual items (expenses) detracted from Nishikawa Rubber's earnings over the last year, but we might see an improvement next year. Because of this, we think Nishikawa Rubber's earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share have grown at an extremely impressive rate over the last three years. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you want to do dive deeper into Nishikawa Rubber, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 1 warning sign for Nishikawa Rubber you should know about.

This note has only looked at a single factor that sheds light on the nature of Nishikawa Rubber's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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. 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.