Investors Can Find Comfort In Kawanishi WarehouseLtd's (TSE:9322) Earnings Quality

The market for Kawanishi Warehouse Co.,Ltd.'s (TSE:9322) shares didn't move much after it posted weak earnings recently. We did some digging, and we believe the earnings are stronger than they seem.

Check out our latest analysis for Kawanishi WarehouseLtd

The Impact Of Unusual Items On Profit

For anyone who wants to understand Kawanishi WarehouseLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by JP¥157m 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 Kawanishi WarehouseLtd 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 Kawanishi WarehouseLtd.

Our Take On Kawanishi WarehouseLtd's Profit Performance

Unusual items (expenses) detracted from Kawanishi WarehouseLtd's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Kawanishi WarehouseLtd's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at 45% per year over the last three years. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Case in point: We've spotted 3 warning signs for Kawanishi WarehouseLtd you should be aware of.

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