Tsurumi ManufacturingLtd's (TSE:6351) Solid Earnings May Rest On Weak Foundations

The market shrugged off Tsurumi Manufacturing Co.,Ltd.'s (TSE:6351) solid earnings report. We did some digging and believe investors may be worried about some underlying factors in the report.

View our latest analysis for Tsurumi ManufacturingLtd

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Tsurumi ManufacturingLtd's profit received a boost of JP¥1.2b 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 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'. 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 Tsurumi ManufacturingLtd.

Our Take On Tsurumi ManufacturingLtd's Profit Performance

We'd posit that Tsurumi ManufacturingLtd's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Tsurumi ManufacturingLtd'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. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. Just as investors must consider earnings, it is also important to take into account the strength of a company's balance sheet. You can see our latest analysis on Tsurumi ManufacturingLtd's balance sheet health here.

This note has only looked at a single factor that sheds light on the nature of Tsurumi ManufacturingLtd'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. 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.