Is There More To The Story Than Iwatsuka Confectionery's (TYO:2221) Earnings Growth?

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. This article will consider whether Iwatsuka Confectionery's (TYO:2221) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months Iwatsuka Confectionery made a profit of JP¥2.02b on revenue of JP¥22.9b. As depicted below, while its revenue may have fallen over the last few years, its profit actually improved.

Check out our latest analysis for Iwatsuka Confectionery

Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. This article will focus on the impact unusual items have had on Iwatsuka Confectionery's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Iwatsuka Confectionery.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Iwatsuka Confectionery's profit was reduced by JP¥134m, due to unusual items, over the last year. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. In the twelve months to September 2020, Iwatsuka Confectionery had a big unusual items expense. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.

Our Take On Iwatsuka Confectionery's Profit Performance

As we mentioned previously, the Iwatsuka Confectionery's profit was hampered by unusual items in the last year. Because of this, we think Iwatsuka Confectionery's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! And on top of that, its earnings per share have grown at an extremely impressive rate over the last three years. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. While earnings are important, another area to consider is the balance sheet. You can see our latest analysis on Iwatsuka Confectionery's balance sheet health here.

Today we've zoomed in on a single data point to better understand the nature of Iwatsuka Confectionery'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 that insiders are buying.

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This article by Simply Wall St is general in nature. 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.
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