Shareholders Can Be Confident That LEC's (TSE:7874) Earnings Are High Quality

Investors were underwhelmed by the solid earnings posted by LEC, Inc. (TSE:7874) recently. We did some digging and actually think they are being unnecessarily pessimistic.

Check out our latest analysis for LEC

How Do Unusual Items Influence Profit?

To properly understand LEC's profit results, we need to consider the JP¥243m expense attributed 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 LEC 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 LEC.

Our Take On LEC's Profit Performance

Because unusual items detracted from LEC's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think LEC's earnings potential is at least as good as it seems, and maybe even better! Furthermore, it has done a great job growing EPS over 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. If you'd like to know more about LEC as a business, it's important to be aware of any risks it's facing. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of LEC.

Today we've zoomed in on a single data point to better understand the nature of LEC's profit. 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.