Stock Analysis

Does KyowakogyosyoLtd's (TYO:5971) Statutory Profit Adequately Reflect Its Underlying Profit?

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TSE:5971
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As a general rule, we think profitable companies are less risky than companies that lose money. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. In this article, we'll look at how useful this year's statutory profit is, when analysing KyowakogyosyoLtd (TYO:5971).

We like the fact that KyowakogyosyoLtd made a profit of JP¥329.0m on its revenue of JP¥6.99b, in the last year. The chart below shows that both revenue and profit have declined over the last three years.

See our latest analysis for KyowakogyosyoLtd

earnings-and-revenue-history
JASDAQ:5971 Earnings and Revenue History January 25th 2021

Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. This article will focus on the impact unusual items have had on KyowakogyosyoLtd's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of KyowakogyosyoLtd.

The Impact Of Unusual Items On Profit

To properly understand KyowakogyosyoLtd's profit results, we need to consider the JP¥41m 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 that's hardly a surprise given these line items are considered unusual. If KyowakogyosyoLtd doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On KyowakogyosyoLtd's Profit Performance

Unusual items (expenses) detracted from KyowakogyosyoLtd's earnings over the last year, but we might see an improvement next year. Because of this, we think KyowakogyosyoLtd's earnings potential is at least as good as it seems, and maybe even better! Unfortunately, though, its earnings per share actually fell back over the last year. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of KyowakogyosyoLtd.

This note has only looked at a single factor that sheds light on the nature of KyowakogyosyoLtd's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 that insiders are buying.

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About TSE:5971

KyowakogyosyoLtd

Kyowakogyosyo Co.,Ltd. manufactures and sells hexagon bolts, JIS hexagon socket head cap screws, bolts for construction machinery and internal combustion engines, cold-forged parts for automobiles, and special cold-/hot-forged parts in Japan and internationally.

Excellent balance sheet, good value and pays a dividend.

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