Does Taisei Oncho's (TYO:1904) Statutory Profit Adequately Reflect Its Underlying Profit?

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether Taisei Oncho's (TYO:1904) statutory profits are a good guide to its underlying earnings.

We like the fact that Taisei Oncho made a profit of JP¥1.70b on its revenue of JP¥58.5b, in the last year. In the last few years its profit has fallen, although its revenue was steady, as you can see in the chart below.

View our latest analysis for Taisei Oncho

Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. This article will discuss how unusual items have impacted Taisei Oncho's most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Taisei Oncho.

The Impact Of Unusual Items On Profit

To properly understand Taisei Oncho's profit results, we need to consider the JP¥250m gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. If Taisei Oncho doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On Taisei Oncho's Profit Performance

We'd posit that Taisei Oncho's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Taisei Oncho's statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the 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. While earnings are important, another area to consider is the balance sheet. You can see our latest analysis on Taisei Oncho's balance sheet health here.

This note has only looked at a single factor that sheds light on the nature of Taisei Oncho'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 that insiders are buying to be useful.

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This article by Simply Wall St is general in nature. 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.
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