Some Investors May Be Willing To Look Past Nikon's (TSE:7731) Soft Earnings

Explore Nikon's Fair Values from the Community and select yours

A lackluster earnings announcement from Nikon Corporation (TSE:7731) last week didn't sink the stock price. We think that investors are worried about some weaknesses underlying the earnings.

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The Impact Of Unusual Items On Profit

For anyone who wants to understand Nikon's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by JP¥14b 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 that's hardly a surprise given these line items are considered unusual. In the twelve months to June 2025, Nikon had a big unusual items expense. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

An Unusual Tax Situation

Having already discussed the impact of the unusual items, we should also note that Nikon received a tax benefit of JP¥12b. This is meaningful because companies usually pay tax rather than receive tax benefits. We're sure the company was pleased with its tax benefit. However, our data indicates that tax benefits can temporarily boost statutory profit in the year it is booked, but subsequently profit may fall back. In the likely event the tax benefit is not repeated, we'd expect to see its statutory profit levels drop, at least in the absence of strong growth.

Our Take On Nikon's Profit Performance

In its last report Nikon received a tax benefit which might make its profit look better than it really is on a underlying level. Having said that, it also had a unusual item reducing its profit. Based on these factors, it's hard to tell if Nikon's profits are a reasonable reflection of its underlying profitability. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Every company has risks, and we've spotted 3 warning signs for Nikon (of which 1 can't be ignored!) you should know about.

In this article we've looked at a number of factors that can impair the utility of profit numbers, as a guide to a business. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.