There May Be Underlying Issues With The Quality Of Toenec's (TSE:1946) Earnings

Despite posting some strong earnings, the market for Toenec Corporation's (TSE:1946) stock hasn't moved much. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

See our latest analysis for Toenec

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Toenec's profit received a boost of JP¥1.9b in unusual items, over the last year. 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. Which is hardly surprising, given the name. 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).

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

Our Take On Toenec's Profit Performance

Arguably, Toenec's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Toenec's statutory profits are better than its underlying earnings power. The good news is that, its earnings per share increased by 44% 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. So while earnings quality is important, it's equally important to consider the risks facing Toenec at this point in time. For instance, we've identified 2 warning signs for Toenec (1 is concerning) you should be familiar with.

Today we've zoomed in on a single data point to better understand the nature of Toenec's profit. But there are plenty of other ways to inform your opinion of a company. 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. 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.