Some Investors May Be Willing To Look Past Togami Electric Mfg's (TSE:6643) Soft Earnings

The most recent earnings report from Togami Electric Mfg. Co., Ltd. (TSE:6643) was disappointing for shareholders. However, our analysis suggests that the soft headline numbers are getting counterbalanced by some positive underlying factors.

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The Impact Of Unusual Items On Profit

For anyone who wants to understand Togami Electric Mfg's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by JP¥525m due to unusual items. 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, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Togami Electric Mfg to produce a higher profit next year, all else being equal.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Togami Electric Mfg.

Our Take On Togami Electric Mfg's Profit Performance

Because unusual items detracted from Togami Electric Mfg's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Togami Electric Mfg's earnings potential is at least as good as it seems, and maybe even better! And the EPS is up 59% annually, 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. So while earnings quality is important, it's equally important to consider the risks facing Togami Electric Mfg at this point in time. At Simply Wall St, we found 1 warning sign for Togami Electric Mfg and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of Togami Electric Mfg's profit. But there are plenty of other ways to inform your opinion of a company. 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.