Statutory Profit Doesn't Reflect How Good Mikuni's (TSE:7247) Earnings Are

The subdued stock price reaction suggests that Mikuni Corporation's (TSE:7247) strong earnings didn't offer any surprises. Investors are probably missing some underlying factors which are encouraging for the future of the company.

Check out our latest analysis for Mikuni

The Impact Of Unusual Items On Profit

To properly understand Mikuni's profit results, we need to consider the JP¥396m expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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. Assuming those unusual expenses don't come up again, we'd therefore expect Mikuni to produce a higher profit next year, all else being equal.

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

Our Take On Mikuni's Profit Performance

Unusual items (expenses) detracted from Mikuni's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Mikuni's statutory profit actually understates its earnings potential! And it's also positive that the company showed enough improvement to book a profit this year, after losing money last year. 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. If you want to do dive deeper into Mikuni, you'd also look into what risks it is currently facing. For instance, we've identified 3 warning signs for Mikuni (1 is a bit unpleasant) you should be familiar with.

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