Teikoku Electric Mfg.Co.Ltd's (TSE:6333) Conservative Accounting Might Explain Soft Earnings

Investors were disappointed with the weak earnings posted by Teikoku Electric Mfg.Co.,Ltd. (TSE:6333 ). However, our analysis suggests that the soft headline numbers are getting counterbalanced by some positive underlying factors.

See our latest analysis for Teikoku Electric Mfg.Co.Ltd

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Teikoku Electric Mfg.Co.Ltd's profit was reduced by JP¥520m, due to unusual items, over the last year. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Teikoku Electric Mfg.Co.Ltd to produce a higher profit next year, all else being equal.

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 Teikoku Electric Mfg.Co.Ltd's Profit Performance

Unusual items (expenses) detracted from Teikoku Electric Mfg.Co.Ltd's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Teikoku Electric Mfg.Co.Ltd's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at 47% per year 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Case in point: We've spotted 1 warning sign for Teikoku Electric Mfg.Co.Ltd you should be aware of.

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