Takara StandardLtd's (TSE:7981) Promising Earnings May Rest On Soft Foundations

Despite posting some strong earnings, the market for Takara Standard Co.,Ltd.'s (TSE:7981) stock hasn't moved much. Our analysis suggests that shareholders have noticed something concerning in the numbers.

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The Impact Of Unusual Items On Profit

For anyone who wants to understand Takara StandardLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from JP¥1.4b worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. If Takara StandardLtd doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

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

Our Take On Takara StandardLtd's Profit Performance

Arguably, Takara StandardLtd's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Takara StandardLtd's true underlying earnings power is actually less than its statutory profit. Nonetheless, it's still worth noting that its earnings per share have grown at 60% 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. While conducting our analysis, we found that Takara StandardLtd has 1 warning sign and it would be unwise to ignore it.

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