There Are Some Reasons To Suggest That UCHIYAMA HOLDINGSLtd's (TSE:6059) Earnings Are A Poor Reflection Of Profitability

Solid profit numbers didn't seem to be enough to please UCHIYAMA HOLDINGS Co.,Ltd.'s (TSE:6059) shareholders. Our analysis suggests they may be concerned about some underlying details.

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The Impact Of Unusual Items On Profit

Importantly, our data indicates that UCHIYAMA HOLDINGSLtd's profit received a boost of JP¥119m in unusual items, over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And that's as you'd expect, given these boosts are described as 'unusual'. We can see that UCHIYAMA HOLDINGSLtd's positive unusual items were quite significant relative to its profit in the year to March 2025. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

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

An Unusual Tax Situation

Having already discussed the impact of the unusual items, we should also note that UCHIYAMA HOLDINGSLtd received a tax benefit of JP¥1.4b. This is meaningful because companies usually pay tax rather than receive tax benefits. The receipt of a tax benefit is obviously a good thing, on its own. However, our data indicates that tax benefits can temporarily boost statutory profit in the year it is booked, but subsequently profit may fall back. Assuming the tax benefit is not repeated every year, we could see its profitability drop noticeably, all else being equal. So while we think it's great to receive a tax benefit, it does tend to imply an increased risk that the statutory profit overstates the sustainable earnings power of the business.

Our Take On UCHIYAMA HOLDINGSLtd's Profit Performance

In its last report UCHIYAMA HOLDINGSLtd received a tax benefit which might make its profit look better than it really is on a underlying level. And on top of that, it also saw an unusual item boost its profit, suggesting that next year might see a lower profit number, if these events are not repeated. For all the reasons mentioned above, we think that, at a glance, UCHIYAMA HOLDINGSLtd's statutory profits could be considered to be low quality, because they are likely to give investors an overly positive impression of the company. 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. For example, we've discovered 3 warning signs that you should run your eye over to get a better picture of UCHIYAMA HOLDINGSLtd.

Our examination of UCHIYAMA HOLDINGSLtd has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. But there are plenty of other ways to inform your opinion of a company. 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. 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.