We Like Makuake's (TSE:4479) Earnings For More Than Just Statutory Profit

Investors signalled that they were pleased with Makuake, Inc.'s (TSE:4479) most recent earnings report. Looking deeper at the numbers, we found several encouraging factors beyond the headline profit numbers.

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The Impact Of Unusual Items On Profit

For anyone who wants to understand Makuake's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by JP¥65m due to unusual items. 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. If Makuake doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

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

Our Take On Makuake's Profit Performance

Unusual items (expenses) detracted from Makuake's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Makuake's statutory profit actually understates its earnings potential! And one can definitely find a positive in the fact that it made a profit this year, despite losing money 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. In terms of investment risks, we've identified 3 warning signs with Makuake, and understanding these bad boys should be part of your investment process.

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