Yuasa Funashoku's (TSE:8006) Earnings Are Of Questionable Quality

Yuasa Funashoku Co., Ltd. (TSE:8006) announced strong profits, but the stock was stagnant. We did some digging, and we found some concerning factors in the details.

Check out our latest analysis for Yuasa Funashoku

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Yuasa Funashoku's profit received a boost of JP¥1.8b in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And, after all, that's exactly what the accounting terminology implies. We can see that Yuasa Funashoku's positive unusual items were quite significant relative to its profit in the year to March 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

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

Our Take On Yuasa Funashoku's Profit Performance

As we discussed above, we think the significant positive unusual item makes Yuasa Funashoku's earnings a poor guide to its underlying profitability. For this reason, we think that Yuasa Funashoku's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. But the happy news is that, while acknowledging we have to look beyond the statutory numbers, those numbers are still improving, with EPS growing at a very high rate over 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. If you want to do dive deeper into Yuasa Funashoku, you'd also look into what risks it is currently facing. For example - Yuasa Funashoku has 3 warning signs we think you should be aware of.

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