Are Hokuyaku Takeyama HoldingsInc's (SPSE:3055) Statutory Earnings A Good Guide To Its Underlying Profitability?

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. Today we'll focus on whether this year's statutory profits are a good guide to understanding Hokuyaku Takeyama HoldingsInc (SPSE:3055).

We like the fact that Hokuyaku Takeyama HoldingsInc made a profit of JP¥1.51b on its revenue of JP¥236.9b, in the last year. Happily, it has grown both its profit and revenue over the last three years (but not in the last year), as you can see in the chart below.

Check out our latest analysis for Hokuyaku Takeyama HoldingsInc

Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. This article will focus on the impact unusual items have had on Hokuyaku Takeyama HoldingsInc's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Hokuyaku Takeyama HoldingsInc.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Hokuyaku Takeyama HoldingsInc's profit was reduced by JP¥771m, due to unusual items, over the last year. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. 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. If Hokuyaku Takeyama HoldingsInc doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On Hokuyaku Takeyama HoldingsInc's Profit Performance

Unusual items (expenses) detracted from Hokuyaku Takeyama HoldingsInc's earnings over the last year, but we might see an improvement next year. Because of this, we think Hokuyaku Takeyama HoldingsInc's earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share have grown at 22% per year over the last three years. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. While conducting our analysis, we found that Hokuyaku Takeyama HoldingsInc has 2 warning signs and it would be unwise to ignore them.

Today we've zoomed in on a single data point to better understand the nature of Hokuyaku Takeyama HoldingsInc's profit. But there are plenty of other ways to inform your opinion of a company. 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 that insiders are buying.

If you’re looking to trade Hokuyaku Takeyama HoldingsInc, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.