Shareholders Can Be Confident That Retail Partners' (TSE:8167) Earnings Are High Quality

Retail Partners Co., Ltd. (TSE:8167) just reported healthy earnings but the stock price didn't move much. Investors are probably missing some underlying factors which are encouraging for the future of the company.

See our latest analysis for Retail Partners

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Retail Partners' profit was reduced by JP¥906m, due to unusual items, over the last year. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. If Retail Partners 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 Retail Partners.

Our Take On Retail Partners' Profit Performance

Because unusual items detracted from Retail Partners' earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Retail Partners' statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at 46% per year 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. Just as investors must consider earnings, it is also important to take into account the strength of a company's balance sheet. If you're interested we have a graphic representation of Retail Partners' balance sheet.

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