Kansai Paint's (TSE:4613) Weak Earnings May Only Reveal A Part Of The Whole Picture

The market wasn't impressed with the soft earnings from Kansai Paint Co., Ltd. (TSE:4613) recently. Our analysis has found some reasons to be concerned, beyond the weak headline numbers.

Check out our latest analysis for Kansai Paint

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Kansai Paint's profit received a boost of JP¥8.9b 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 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).

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 Kansai Paint's Profit Performance

Arguably, Kansai Paint's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Kansai Paint's true underlying earnings power is actually less than its statutory profit. Nonetheless, it's still worth noting that its earnings per share have grown at 63% 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Case in point: We've spotted 2 warning signs for Kansai Paint you should be mindful of and 1 of these is potentially serious.

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