Dainichiseika Color & Chemicals Mfg's (TSE:4116) Profits May Not Reveal Underlying Issues

The recent earnings posted by Dainichiseika Color & Chemicals Mfg. Co., Ltd. (TSE:4116) were solid, but the stock didn't move as much as we expected. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

Check out our latest analysis for Dainichiseika Color & Chemicals Mfg

The Impact Of Unusual Items On Profit

To properly understand Dainichiseika Color & Chemicals Mfg's profit results, we need to consider the JP¥338m gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Dainichiseika Color & Chemicals Mfg.

Our Take On Dainichiseika Color & Chemicals Mfg's Profit Performance

Arguably, Dainichiseika Color & Chemicals Mfg's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Dainichiseika Color & Chemicals Mfg's statutory profits are better than its underlying earnings power. The silver lining is that its EPS growth over the last year has been really wonderful, even if it's not a perfect measure. 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 Dainichiseika Color & Chemicals Mfg, you'd also look into what risks it is currently facing. To that end, you should learn about the 2 warning signs we've spotted with Dainichiseika Color & Chemicals Mfg (including 1 which makes us a bit uncomfortable).

This note has only looked at a single factor that sheds light on the nature of Dainichiseika Color & Chemicals Mfg'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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.