We Think Nippon Shikizai's (TSE:4920) Healthy Earnings Might Be Conservative

The stock was sluggish on the back of Nippon Shikizai, Inc.'s (TSE:4920) recent earnings report. Our analysis suggests that there are some reasons for hope that investors should be aware of.

View our latest analysis for Nippon Shikizai

How Do Unusual Items Influence Profit?

To properly understand Nippon Shikizai's profit results, we need to consider the JP¥122m expense attributed 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. Assuming those unusual expenses don't come up again, we'd therefore expect Nippon Shikizai to produce a higher profit next year, all else being equal.

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

Our Take On Nippon Shikizai's Profit Performance

Unusual items (expenses) detracted from Nippon Shikizai's earnings over the last year, but we might see an improvement next year. Because of this, we think Nippon Shikizai's earnings potential is at least as good as it seems, and maybe even better! And the EPS is up 12% over 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. 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. Our analysis shows 4 warning signs for Nippon Shikizai (2 are a bit concerning!) and we strongly recommend you look at them before investing.

This note has only looked at a single factor that sheds light on the nature of Nippon Shikizai'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.