Nihonwasou Holdings' (TSE:2499) Soft Earnings Don't Show The Whole Picture

Shareholders appeared unconcerned with Nihonwasou Holdings, Inc.'s (TSE:2499) lackluster earnings report last week. We did some digging, and we believe the earnings are stronger than they seem.

View our latest analysis for Nihonwasou Holdings

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Nihonwasou Holdings' profit was reduced by JP¥50m, due to unusual items, over the last year. 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 Nihonwasou Holdings 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 Nihonwasou Holdings.

Our Take On Nihonwasou Holdings' Profit Performance

Unusual items (expenses) detracted from Nihonwasou Holdings' earnings over the last year, but we might see an improvement next year. Because of this, we think Nihonwasou Holdings' earnings potential is at least as good as it seems, and maybe even better! 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. 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. Our analysis shows 4 warning signs for Nihonwasou Holdings (2 are significant!) and we strongly recommend you look at these before investing.

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