Tokushu Tokai Paper's (TSE:3708) Soft Earnings Don't Show The Whole Picture

The market for Tokushu Tokai Paper Co., Ltd.'s (TSE:3708) shares didn't move much after it posted weak earnings recently. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

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How Do Unusual Items Influence Profit?

For anyone who wants to understand Tokushu Tokai Paper's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by JP¥755m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. If Tokushu Tokai Paper doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Tokushu Tokai Paper.

Our Take On Tokushu Tokai Paper's Profit Performance

Unusual items (expenses) detracted from Tokushu Tokai Paper's earnings over the last year, but we might see an improvement next year. Because of this, we think Tokushu Tokai Paper's earnings potential is at least as good as it seems, and maybe even better! And the EPS is up 25% annually, over the last three years. 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 Tokushu Tokai Paper as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 2 warning signs for Tokushu Tokai Paper you should be mindful of and 1 of these bad boys makes us a bit uncomfortable.

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