Why Nichiwa Sangyo's (TSE:2055) Earnings Are Better Than They Seem

Nichiwa Sangyo Co., Ltd.'s (TSE:2055) recent earnings report didn't offer any surprises, with the shares unchanged over the last week. We did some digging, and we think that investors are missing some encouraging factors in the underlying numbers.

Check out our latest analysis for Nichiwa Sangyo

The Impact Of Unusual Items On Profit

For anyone who wants to understand Nichiwa Sangyo's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by JP¥256m due to unusual items. 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. Assuming those unusual expenses don't come up again, we'd therefore expect Nichiwa Sangyo to produce a higher profit next year, all else being equal.

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

Our Take On Nichiwa Sangyo's Profit Performance

Unusual items (expenses) detracted from Nichiwa Sangyo's earnings over the last year, but we might see an improvement next year. Because of this, we think Nichiwa Sangyo's earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share increased by 23% in 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. While conducting our analysis, we found that Nichiwa Sangyo 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 Nichiwa Sangyo'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.