We Think KICHIRI HOLDINGSLtd's (TSE:3082) Profit Is Only A Baseline For What They Can Achieve

Even though KICHIRI HOLDINGS & Co.,Ltd.'s (TSE:3082) recent earnings release was robust, the market didn't seem to notice. We think that investors have missed some encouraging factors underlying the profit figures.

Check out our latest analysis for KICHIRI HOLDINGSLtd

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, KICHIRI HOLDINGSLtd increased the number of shares on issue by 7.6% over the last twelve months by issuing new shares. As a result, its net income is now split between a greater number of shares. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. You can see a chart of KICHIRI HOLDINGSLtd's EPS by clicking here.

How Is Dilution Impacting KICHIRI HOLDINGSLtd's Earnings Per Share (EPS)?

Three years ago, KICHIRI HOLDINGSLtd lost money. And even focusing only on the last twelve months, we don't have a meaningful growth rate because it made a loss a year ago, too. But mathematics aside, it is always good to see when a formerly unprofitable business come good (though we accept profit would have been higher if dilution had not been required). And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, if KICHIRI HOLDINGSLtd's earnings per share can increase, then the share price should too. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

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

How Do Unusual Items Influence Profit?

On top of the dilution, we should also consider the JP¥382m impact of unusual items in the last year, which had the effect of suppressing profit. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. KICHIRI HOLDINGSLtd took a rather significant hit from unusual items in the year to June 2024. As a result, we can surmise that the unusual items made its statutory profit significantly weaker than it would otherwise be.

Our Take On KICHIRI HOLDINGSLtd's Profit Performance

To sum it all up, KICHIRI HOLDINGSLtd took a hit from unusual items which pushed its profit down; without that, it would have made more money. But on the other hand, the company issued more shares, so without buying more shares each shareholder will end up with a smaller part of the profit. Considering all the aforementioned, we'd venture that KICHIRI HOLDINGSLtd's profit result is a pretty good guide to its true profitability, albeit a bit on the conservative side. If you want to do dive deeper into KICHIRI HOLDINGSLtd, you'd also look into what risks it is currently facing. At Simply Wall St, we found 3 warning signs for KICHIRI HOLDINGSLtd and we think they deserve your attention.

Our examination of KICHIRI HOLDINGSLtd has focussed on certain factors that can make its earnings look better than they are. 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.