We Like Yondenko's (TSE:1939) Earnings For More Than Just Statutory Profit

The stock was sluggish on the back of Yondenko Corporation's (TSE:1939) recent earnings report. We have done some analysis, and found some encouraging factors that we believe the shareholders should consider.

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How Do Unusual Items Influence Profit?

To properly understand Yondenko's profit results, we need to consider the JP¥909m expense attributed to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. If Yondenko doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

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

Our Take On Yondenko's Profit Performance

Unusual items (expenses) detracted from Yondenko's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Yondenko's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at 37% per year over the last three years. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. In terms of investment risks, we've identified 1 warning sign with Yondenko, and understanding this should be part of your investment process.

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