We Like The Quality Of IMAGE MAGIC's (TSE:7793) Earnings

The stock was sluggish on the back of IMAGE MAGIC Inc.'s (TSE:7793) recent earnings report. Our analysis suggests that there are some reasons for hope that investors should be aware of.

View 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¥69m, 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. Based on this observation, we consider it likely that IMAGE MAGIC's statutory profit actually understates its earnings potential! And on top of that, its earnings per share increased by 5.5% in the last year. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. You'd be interested to know, that we found 2 warning signs for IMAGE MAGIC and you'll want to know about them.

This note has only looked at a single factor that sheds light on 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. 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.