Miyoshi Oil & Fat's (TSE:4404) Promising Earnings May Rest On Soft Foundations

Last week's profit announcement from Miyoshi Oil & Fat Co., Ltd. (TSE:4404) was underwhelming for investors, despite headline numbers being robust. Our analysis uncovered some concerning factors that we believe the market might be paying attention to.

Check out our latest analysis for Miyoshi Oil & Fat

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Miyoshi Oil & Fat's profit received a boost of JP¥652m 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 that's as you'd expect, given these boosts are described as 'unusual'. 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 Miyoshi Oil & Fat.

Our Take On Miyoshi Oil & Fat's Profit Performance

We'd posit that Miyoshi Oil & Fat's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Miyoshi Oil & Fat's statutory profits are better than its underlying earnings power. The good news is that, its earnings per share increased by 36% in the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you want to do dive deeper into Miyoshi Oil & Fat, you'd also look into what risks it is currently facing. For example - Miyoshi Oil & Fat has 3 warning signs we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Miyoshi Oil & Fat'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.