Kuraray's (TSE:3405) Soft Earnings Don't Show The Whole Picture

Shareholders appeared unconcerned with Kuraray Co., Ltd.'s (TSE:3405) lackluster earnings report last week. We did some digging, and we believe the earnings are stronger than they seem.

Check out our latest analysis for Kuraray

How Do Unusual Items Influence Profit?

To properly understand Kuraray's profit results, we need to consider the JP¥7.8b 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 Kuraray 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 Kuraray's Profit Performance

Because unusual items detracted from Kuraray'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 Kuraray's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at an extremely impressive rate 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. If you'd like to know more about Kuraray as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 1 warning sign for Kuraray you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Kuraray'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. 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. 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.