Asaka Riken Co.,Ltd.'s (TSE:5724) robust recent earnings didn't do much to move the stock. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.
See our latest analysis for Asaka RikenLtd
How Do Unusual Items Influence Profit?
Importantly, our data indicates that Asaka RikenLtd's profit received a boost of JP¥242m in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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. Which is hardly surprising, given the name. Asaka RikenLtd had a rather significant contribution from unusual items relative to its profit to September 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Asaka RikenLtd.
Our Take On Asaka RikenLtd's Profit Performance
As we discussed above, we think the significant positive unusual item makes Asaka RikenLtd's earnings a poor guide to its underlying profitability. For this reason, we think that Asaka RikenLtd's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. But at least holders can take some solace from the 21% EPS growth in 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 Asaka RikenLtd at this point in time. Case in point: We've spotted 2 warning signs for Asaka RikenLtd you should be aware of.
Today we've zoomed in on a single data point to better understand the nature of Asaka RikenLtd's 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.
About TSE:5724
Asaka RikenLtd
Engages in the precious metal, environmental, and other businesses in Japan.
Flawless balance sheet with acceptable track record.
