Shareholders Can Be Confident That Key Coffee's (TSE:2594) Earnings Are High Quality

Even though Key Coffee Inc.'s (TSE:2594) recent earnings release was robust, the market didn't seem to notice. Our analysis suggests that investors might be missing some promising details.

We check all companies for important risks. See what we found for Key Coffee in our free report.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Key Coffee's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by JP¥90m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. If Key Coffee doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

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

Our Take On Key Coffee's Profit Performance

Unusual items (expenses) detracted from Key Coffee's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Key Coffee's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at an extremely impressive rate over the last year. 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. We've done some analysis and you can see our take on Key Coffee's balance sheet by clicking here.

Today we've zoomed in on a single data point to better understand the nature of Key Coffee's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.