We Think Daido Kogyo's (TSE:6373) Profit Is Only A Baseline For What They Can Achieve

Daido Kogyo Co., Ltd. (TSE:6373) recently posted some strong earnings, and the market responded positively. Our analysis found some more factors that we think are good for shareholders.

View our latest analysis for Daido Kogyo

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Daido Kogyo's profit was reduced by JP¥71m, due to unusual items, over the last year. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. In the twelve months to March 2024, Daido Kogyo had a big unusual items expense. As a result, we can surmise that the unusual items made its statutory profit significantly weaker 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 Daido Kogyo.

Our Take On Daido Kogyo's Profit Performance

As we discussed above, we think the significant unusual expense will make Daido Kogyo's statutory profit lower than it would otherwise have been. Because of this, we think Daido Kogyo's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! And it's also positive that the company showed enough improvement to book a profit this year, after losing money last year. 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 Daido Kogyo as a business, it's important to be aware of any risks it's facing. When we did our research, we found 3 warning signs for Daido Kogyo (2 are concerning!) that we believe deserve your full attention.

Today we've zoomed in on a single data point to better understand the nature of Daido Kogyo's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.