Semba Tohka Industries' (TSE:2916) Soft Earnings Don't Show The Whole Picture

Soft earnings didn't appear to concern Semba Tohka Industries Co., Ltd's (TSE:2916) shareholders over the last week. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

Our free stock report includes 4 warning signs investors should be aware of before investing in Semba Tohka Industries. Read for free now.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Semba Tohka Industries' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by JP¥233m due to unusual items. 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, after all, that's exactly what the accounting terminology implies. If Semba Tohka Industries 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 Semba Tohka Industries.

Our Take On Semba Tohka Industries' Profit Performance

Unusual items (expenses) detracted from Semba Tohka Industries' earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Semba Tohka Industries' statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in the last twelve months. 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 while earnings quality is important, it's equally important to consider the risks facing Semba Tohka Industries at this point in time. To help with this, we've discovered 4 warning signs (1 makes us a bit uncomfortable!) that you ought to be aware of before buying any shares in Semba Tohka Industries.

This note has only looked at a single factor that sheds light on the nature of Semba Tohka Industries' 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.