UEX's (TSE:9888) Conservative Accounting Might Explain Soft Earnings

Soft earnings didn't appear to concern UEX, Ltd.'s (TSE:9888) shareholders over the last week. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

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The Impact Of Unusual Items On Profit

For anyone who wants to understand UEX's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by JP¥205m 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 that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect UEX 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 UEX.

Our Take On UEX's Profit Performance

Because unusual items detracted from UEX's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that UEX's statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over the last year. 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 UEX at this point in time. You'd be interested to know, that we found 2 warning signs for UEX and you'll want to know about these.

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