Japan Pulp and Paper's (TSE:8032) Soft Earnings Don't Show The Whole Picture

Investors were disappointed with the weak earnings posted by Japan Pulp and Paper Company Limited (TSE:8032 ). Despite the soft profit numbers, our analysis has optimistic about the overall quality of the income statement.

Our free stock report includes 1 warning sign investors should be aware of before investing in Japan Pulp and Paper. Read for free now.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Japan Pulp and Paper's profit was reduced by JP¥1.6b, 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. Assuming those unusual expenses don't come up again, we'd therefore expect Japan Pulp and Paper 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 Japan Pulp and Paper.

Our Take On Japan Pulp and Paper's Profit Performance

Because unusual items detracted from Japan Pulp and Paper'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 Japan Pulp and Paper's earnings potential is at least as good as it seems, and maybe even better! On the other hand, its EPS actually shrunk in the last twelve months. 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. If you'd like to know more about Japan Pulp and Paper as a business, it's important to be aware of any risks it's facing. For example - Japan Pulp and Paper has 1 warning sign we think you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Japan Pulp and Paper'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. 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.