Toyo Kanetsu K.K's (TSE:6369) Sluggish Earnings Might Be Just The Beginning Of Its Problems

A lackluster earnings announcement from Toyo Kanetsu K.K. (TSE:6369) last week didn't sink the stock price. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

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How Do Unusual Items Influence Profit?

Importantly, our data indicates that Toyo Kanetsu K.K's profit received a boost of JP¥358m 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. Which is hardly surprising, given the name. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Toyo Kanetsu K.K.

Our Take On Toyo Kanetsu K.K's Profit Performance

Arguably, Toyo Kanetsu K.K's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Toyo Kanetsu K.K's statutory profits are better than its underlying earnings power. But on the bright side, its earnings per share have grown at an extremely impressive rate 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. If you want to do dive deeper into Toyo Kanetsu K.K, you'd also look into what risks it is currently facing. While conducting our analysis, we found that Toyo Kanetsu K.K has 1 warning sign and it would be unwise to ignore this.

This note has only looked at a single factor that sheds light on the nature of Toyo Kanetsu K.K's profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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.