KyowakogyosyoLtd's (TSE:5971) Profits May Not Reveal Underlying Issues

Kyowakogyosyo Co.,Ltd.'s (TSE:5971 ) stock didn't jump after it announced some healthy earnings. We did some digging and believe investors may be worried about some underlying factors in the report.

Check out our latest analysis for KyowakogyosyoLtd

The Impact Of Unusual Items On Profit

Importantly, our data indicates that KyowakogyosyoLtd's profit received a boost of JP¥690m in unusual items, over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. KyowakogyosyoLtd had a rather significant contribution from unusual items relative to its profit to April 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

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

Our Take On KyowakogyosyoLtd's Profit Performance

As we discussed above, we think the significant positive unusual item makes KyowakogyosyoLtd's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that KyowakogyosyoLtd's underlying earnings power is lower than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. You'd be interested to know, that we found 2 warning signs for KyowakogyosyoLtd and you'll want to know about them.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com