Kawasaki Geological Engineering's (TSE:4673) Earnings Are Weaker Than They Seem

Despite announcing strong earnings, Kawasaki Geological Engineering Co., Ltd.'s (TSE:4673) stock was sluggish. We did some digging and found some worrying underlying problems.

Check out our latest analysis for Kawasaki Geological Engineering

How Do Unusual Items Influence Profit?

To properly understand Kawasaki Geological Engineering's profit results, we need to consider the JP¥51m gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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, 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).

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

Our Take On Kawasaki Geological Engineering's Profit Performance

Arguably, Kawasaki Geological Engineering's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Kawasaki Geological Engineering's statutory profits are better than its underlying earnings power. The silver lining is that its EPS growth over the last year has been really wonderful, even if it's not a perfect measure. 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. 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 Kawasaki Geological Engineering.

Today we've zoomed in on a single data point to better understand the nature of Kawasaki Geological Engineering's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.