We Think That There Are Issues Underlying Inaba Seisakusho's (TSE:3421) Earnings

Inaba Seisakusho Co., Ltd. (TSE:3421) announced strong profits, but the stock was stagnant. We did some digging, and we found some concerning factors in the details.

See our latest analysis for Inaba Seisakusho

How Do Unusual Items Influence Profit?

For anyone who wants to understand Inaba Seisakusho's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from JP¥270m worth of unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And that's as you'd expect, given these boosts are described as 'unusual'. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

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

Our Take On Inaba Seisakusho's Profit Performance

Arguably, Inaba Seisakusho's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Inaba Seisakusho's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 25% EPS growth in the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. Just as investors must consider earnings, it is also important to take into account the strength of a company's balance sheet. We've done some analysis and you can see our take on Inaba Seisakusho's balance sheet by clicking here.

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