Toyobo's (TSE:3101) Soft Earnings Are Actually Better Than They Appear

The market for Toyobo Co., Ltd.'s (TSE:3101) shares didn't move much after it posted weak earnings recently. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

We've discovered 3 warning signs about Toyobo. View them for free.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Toyobo's profit was reduced by JP¥3.4b, 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. Assuming those unusual expenses don't come up again, we'd therefore expect Toyobo to produce a higher profit next year, all else being equal.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Toyobo's Profit Performance

Because unusual items detracted from Toyobo's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Toyobo's earnings potential is at least as good as it seems, and maybe even better! Unfortunately, though, its earnings per share actually fell back over the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you'd like to know more about Toyobo as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 3 warning signs for Toyobo you should be mindful of and 2 of them make us uncomfortable.

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