Impressive Earnings May Not Tell The Whole Story For Seibu Electric & Machinery (TSE:6144)

Seibu Electric & Machinery Co., Ltd.'s (TSE:6144) stock was strong after they recently reported robust earnings. However, our analysis suggests that shareholders may be missing some factors that indicate the earnings result was not as good as it looked.

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How Do Unusual Items Influence Profit?

For anyone who wants to understand Seibu Electric & Machinery's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from JP¥678m worth of unusual items. 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'. 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 Seibu Electric & Machinery.

Our Take On Seibu Electric & Machinery's Profit Performance

Arguably, Seibu Electric & Machinery's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Seibu Electric & Machinery's statutory profits are better than its underlying earnings power. But on the bright side, its earnings per share have grown at an extremely impressive rate 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. Just as investors must consider earnings, it is also important to take into account the strength of a company's balance sheet. We've done some analysis and you can see our take on Seibu Electric & Machinery's balance sheet by clicking here.

Today we've zoomed in on a single data point to better understand the nature of Seibu Electric & Machinery'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.