Some Investors May Be Willing To Look Past Nippon Kayaku's (TSE:4272) Soft Earnings

The market was pleased with the recent earnings report from Nippon Kayaku Co., Ltd. (TSE:4272), despite the profit numbers being soft. However, we think the company is showing some signs that things are more promising than they seem.

View our latest analysis for Nippon Kayaku

How Do Unusual Items Influence Profit?

For anyone who wants to understand Nippon Kayaku's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by JP¥8.9b due 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. 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. Nippon Kayaku took a rather significant hit from unusual items in the year to September 2024. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.

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 Nippon Kayaku's Profit Performance

As we discussed above, we think the significant unusual expense will make Nippon Kayaku's statutory profit lower than it would otherwise have been. Based on this observation, we consider it possible that Nippon Kayaku's statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in the last twelve months. 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. So while earnings quality is important, it's equally important to consider the risks facing Nippon Kayaku at this point in time. To help with this, we've discovered 3 warning signs (1 is a bit concerning!) that you ought to be aware of before buying any shares in Nippon Kayaku.

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