Ishii Food's (TSE:2894) Earnings Are Weaker Than They Seem

Last week's profit announcement from Ishii Food Co., Ltd. (TSE:2894) was underwhelming for investors, despite headline numbers being robust. We did some digging and found some worrying underlying problems.

View our latest analysis for Ishii Food

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Ishii Food's profit received a boost of JP¥85m 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 analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. 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 Ishii Food.

Our Take On Ishii Food's Profit Performance

Arguably, Ishii Food's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Ishii Food's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 54% EPS growth in 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example - Ishii Food has 1 warning sign we think you should be aware of.

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

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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.