Shima Seiki Mfg.Ltd's (TSE:6222) Solid Earnings May Rest On Weak Foundations

Following the solid earnings report from Shima Seiki Mfg.,Ltd. (TSE:6222), the market responded by bidding up the stock price. While the profit numbers were good, our analysis has found some concerning factors that shareholders should be aware of.

See our latest analysis for Shima Seiki Mfg.Ltd

The Impact Of Unusual Items On Profit

For anyone who wants to understand Shima Seiki Mfg.Ltd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from JP¥295m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And that's as you'd expect, given these boosts are described as 'unusual'. We can see that Shima Seiki Mfg.Ltd's positive unusual items were quite significant relative to its profit in the year to March 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Shima Seiki Mfg.Ltd's Profit Performance

As we discussed above, we think the significant positive unusual item makes Shima Seiki Mfg.Ltd's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Shima Seiki Mfg.Ltd's underlying earnings power is lower than its statutory profit. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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. If you'd like to know more about Shima Seiki Mfg.Ltd as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 1 warning sign for Shima Seiki Mfg.Ltd you should know about.

Today we've zoomed in on a single data point to better understand the nature of Shima Seiki Mfg.Ltd'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. 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.