Some Investors May Be Willing To Look Past NPR-Riken's (TSE:6209) Soft Earnings

The market for NPR-Riken Corporation's (TSE:6209) shares didn't move much after it posted weak earnings recently. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

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The Impact Of Unusual Items On Profit

To properly understand NPR-Riken's profit results, we need to consider the JP¥1.5b expense attributed to unusual items. 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 NPR-Riken 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 NPR-Riken.

Our Take On NPR-Riken's Profit Performance

Because unusual items detracted from NPR-Riken's 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 NPR-Riken's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at 49% per year 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. So while earnings quality is important, it's equally important to consider the risks facing NPR-Riken at this point in time. Case in point: We've spotted 2 warning signs for NPR-Riken you should be aware of.

Today we've zoomed in on a single data point to better understand 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. 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.

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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.