Nagahori's (TSE:8139) Conservative Accounting Might Explain Soft Earnings

Soft earnings didn't appear to concern Nagahori Corporation's (TSE:8139) shareholders over the last week. We did some digging, and we believe the earnings are stronger than they seem.

We've discovered 1 warning sign about Nagahori. View them for free.

The Impact Of Unusual Items On Profit

To properly understand Nagahori's profit results, we need to consider the JP¥76m 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 that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Nagahori to produce a higher profit next year, all else being equal.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Nagahori.

Our Take On Nagahori's Profit Performance

Unusual items (expenses) detracted from Nagahori's earnings over the last year, but we might see an improvement next year. Because of this, we think Nagahori's earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share have grown at an extremely impressive rate 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Nagahori.

Today we've zoomed in on a single data point to better understand the nature of Nagahori'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.