We Think You Should Be Aware Of Some Concerning Factors In NITTAN's (TSE:6493) Earnings

NITTAN Corporation's (TSE:6493) healthy profit numbers didn't contain any surprises for investors. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

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How Do Unusual Items Influence Profit?

To properly understand NITTAN's profit results, we need to consider the JP¥331m gain attributed to unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. If NITTAN 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 NITTAN.

Our Take On NITTAN's Profit Performance

Arguably, NITTAN's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that NITTAN's statutory profits are better than its underlying earnings power. The good news is that its earnings per share increased slightly in the last year. 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 NITTAN at this point in time. In terms of investment risks, we've identified 2 warning signs with NITTAN, and understanding these should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of NITTAN's profit. But there are plenty of other ways to inform your opinion of a company. 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.

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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.