There May Be Reason For Hope In Nippon Tungsten's (TSE:6998) Disappointing Earnings

Shareholders appeared unconcerned with Nippon Tungsten Co., Ltd.'s (TSE:6998) lackluster earnings report last week. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

Check out our latest analysis for Nippon Tungsten

How Do Unusual Items Influence Profit?

To properly understand Nippon Tungsten's profit results, we need to consider the JP¥174m expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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. If Nippon Tungsten doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Nippon Tungsten.

Our Take On Nippon Tungsten's Profit Performance

Unusual items (expenses) detracted from Nippon Tungsten's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Nippon Tungsten's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at an extremely impressive rate over the last three years. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. You'd be interested to know, that we found 3 warning signs for Nippon Tungsten and you'll want to know about these.

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