We Think Yuki Gosei Kogyo's (TSE:4531) Healthy Earnings Might Be Conservative

The market seemed underwhelmed by last week's earnings announcement from Yuki Gosei Kogyo Co., Ltd. (TSE:4531) despite the healthy numbers. We did some digging, and we think that investors are missing some encouraging factors in the underlying numbers.

Check out our latest analysis for Yuki Gosei Kogyo

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Yuki Gosei Kogyo's profit was reduced by JP¥225m, due to unusual items, over the last year. 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. Assuming those unusual expenses don't come up again, we'd therefore expect Yuki Gosei Kogyo to produce a higher profit next year, all else being equal.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Yuki Gosei Kogyo.

Our Take On Yuki Gosei Kogyo's Profit Performance

Because unusual items detracted from Yuki Gosei Kogyo's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Yuki Gosei Kogyo's earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share have grown at an extremely impressive rate over the last three years. 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 Yuki Gosei Kogyo at this point in time. When we did our research, we found 3 warning signs for Yuki Gosei Kogyo (1 shouldn't be ignored!) that we believe deserve your full attention.

This note has only looked at a single factor that sheds light on the nature of Yuki Gosei Kogyo'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. 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.