Tohto Suisan's (TSE:8038) Weak Earnings May Only Reveal A Part Of The Whole Picture

Tohto Suisan Co., Ltd.'s (TSE:8038) recent weak earnings report didn't cause a big stock movement. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

View our latest analysis for Tohto Suisan

How Do Unusual Items Influence Profit?

For anyone who wants to understand Tohto Suisan's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from JP¥254m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. If Tohto Suisan doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

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

Our Take On Tohto Suisan's Profit Performance

Arguably, Tohto Suisan's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Tohto Suisan's statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 64% over the last three years. 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. While it's very important to consider the profit and loss statement, you can also learn a lot about a company by looking at its balance sheet. We've done some analysis and you can see our take on Tohto Suisan's balance sheet by clicking here.

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