Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. Today we'll focus on whether this year's statutory profits are a good guide to understanding Yamax (TYO:5285).
While Yamax was able to generate revenue of JP¥17.3b in the last twelve months, we think its profit result of JP¥245.0m was more important. The chart below shows how it has grown revenue over the last three years, but that profit has declined.
See our latest analysis for Yamax
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 Yamax's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Yamax.
How Do Unusual Items Influence Profit?
For anyone who wants to understand Yamax's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by JP¥45m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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 Yamax to produce a higher profit next year, all else being equal.
Our Take On Yamax's Profit Performance
Because unusual items detracted from Yamax's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Yamax's statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over the last year. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, we've found that Yamax has 5 warning signs (1 is concerning!) that deserve your attention before going any further with your analysis.
This note has only looked at a single factor that sheds light on the nature of Yamax's profit. 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. 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 that insiders are buying to be useful.
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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.
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About TSE:5285
Yamax
Engages in the manufacture and sale of concrete and cement products for the construction and civil engineering projects in Japan.
Outstanding track record with flawless balance sheet and pays a dividend.
