NPR-Riken's (TSE:6209) Solid Profits Have Weak Fundamentals

NPR-Riken Corporation (TSE:6209) just reported some strong earnings, and the market reacted accordingly with a healthy uplift in the share price. However, our analysis suggests that shareholders may be missing some factors that indicate the earnings result was not as good as it looked.

View our latest analysis for NPR-Riken

How Do Unusual Items Influence Profit?

For anyone who wants to understand NPR-Riken's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from JP¥15b worth of 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. 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. NPR-Riken had a rather significant contribution from unusual items relative to its profit to September 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of NPR-Riken.

Our Take On NPR-Riken's Profit Performance

As we discussed above, we think the significant positive unusual item makes NPR-Riken's earnings a poor guide to its underlying profitability. For this reason, we think that NPR-Riken's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. But the good news is that its EPS growth over the last three years has been very impressive. 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 NPR-Riken at this point in time. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of NPR-Riken.

This note has only looked at a single factor that sheds light on the nature of NPR-Riken'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.