Asahi PrintingLtd's (TSE:3951) Solid Earnings May Rest On Weak Foundations

Asahi Printing Co.,Ltd.'s (TSE:3951) robust recent earnings didn't do much to move the stock. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.

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The Impact Of Unusual Items On Profit

Importantly, our data indicates that Asahi PrintingLtd's profit received a boost of JP¥375m in unusual items, over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And, after all, that's exactly what the accounting terminology implies. If Asahi PrintingLtd doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

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

Our Take On Asahi PrintingLtd's Profit Performance

Arguably, Asahi PrintingLtd's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Asahi PrintingLtd's statutory profits are better than its underlying earnings power. The good news is that, its earnings per share increased by 6.5% in 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. If you want to do dive deeper into Asahi PrintingLtd, you'd also look into what risks it is currently facing. In terms of investment risks, we've identified 1 warning sign with Asahi PrintingLtd, and understanding it should be part of your investment process.

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