Impressive Earnings May Not Tell The Whole Story For Royal Hotel (TSE:9713)

Last week's profit announcement from The Royal Hotel, Limited (TSE:9713) was underwhelming for investors, despite headline numbers being robust. We did some digging and found some worrying underlying problems.

We've discovered 2 warning signs about Royal Hotel. View them for free.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Royal Hotel's profit received a boost of JP¥1.3b in unusual items, over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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 Royal Hotel's positive unusual items were quite significant relative to its profit in the year to March 2025. 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 Royal Hotel.

Our Take On Royal Hotel's Profit Performance

As previously mentioned, Royal Hotel's large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. For this reason, we think that Royal Hotel'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. 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. If you want to do dive deeper into Royal Hotel, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 2 warning signs for Royal Hotel you should know about.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.