Does Kikusui Electronics's (TYO:6912) Statutory Profit Adequately Reflect Its Underlying Profit?

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. That said, the current statutory profit is not always a good guide to a company's underlying profitability. In this article, we'll look at how useful this year's statutory profit is, when analysing Kikusui Electronics (TYO:6912).

It's good to see that over the last twelve months Kikusui Electronics made a profit of JP¥315.0m on revenue of JP¥8.42b. The chart below shows how it has grown revenue over the last three years, but that profit has declined.

See our latest analysis for Kikusui Electronics

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 focus on the impact unusual items have had on Kikusui Electronics' statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Kikusui Electronics.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Kikusui Electronics' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from JP¥38m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Our Take On Kikusui Electronics' Profit Performance

We'd posit that Kikusui Electronics' 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 Kikusui Electronics' statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. 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'd like to know more about Kikusui Electronics as a business, it's important to be aware of any risks it's facing. You'd be interested to know, that we found 3 warning signs for Kikusui Electronics and you'll want to know about them.

Today we've zoomed in on a single data point to better understand the nature of Kikusui Electronics' 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. 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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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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