Solid Earnings May Not Tell The Whole Story For Toa Road (TSE:1882)

The recent earnings posted by Toa Road Corporation (TSE:1882) were solid, but the stock didn't move as much as we expected. 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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The Impact Of Unusual Items On Profit

For anyone who wants to understand Toa Road's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from JP¥578m worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And that's as you'd expect, given these boosts are described as 'unusual'. If Toa Road 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 Toa Road.

Our Take On Toa Road's Profit Performance

Arguably, Toa Road's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Toa Road's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 29% per annum growth in EPS for the last three. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. You'd be interested to know, that we found 2 warning signs for Toa Road and you'll want to know about them.

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