Statutory Profit Doesn't Reflect How Good IMAGE MAGIC's (TSE:7793) Earnings Are

When companies post strong earnings, the stock generally performs well, just like IMAGE MAGIC Inc.'s (TSE:7793) stock has recently. We have done some analysis, and we found several positive factors beyond the profit numbers.

See our latest analysis for IMAGE MAGIC

The Impact Of Unusual Items On Profit

Importantly, our data indicates that IMAGE MAGIC's profit was reduced by JP¥41m, due to unusual items, over the last year. 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 IMAGE MAGIC 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 IMAGE MAGIC.

Our Take On IMAGE MAGIC's Profit Performance

Unusual items (expenses) detracted from IMAGE MAGIC's earnings over the last year, but we might see an improvement next year. Because of this, we think IMAGE MAGIC's earnings potential is at least as good as it seems, and maybe even better! 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. So while earnings quality is important, it's equally important to consider the risks facing IMAGE MAGIC at this point in time. To help with this, we've discovered 2 warning signs (1 is a bit unpleasant!) that you ought to be aware of before buying any shares in IMAGE MAGIC.

Today we've zoomed in on a single data point to better understand the nature of IMAGE MAGIC's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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.