Nihon Nohyaku's (TSE:4997) Conservative Accounting Might Explain Soft Earnings

Shareholders appeared unconcerned with Nihon Nohyaku Co., Ltd.'s (TSE:4997) lackluster earnings report last week. We did some digging, and we believe the earnings are stronger than they seem.

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The Impact Of Unusual Items On Profit

Importantly, our data indicates that Nihon Nohyaku's profit was reduced by JP¥1.1b, 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. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Nihon Nohyaku 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 Nihon Nohyaku.

Our Take On Nihon Nohyaku's Profit Performance

Because unusual items detracted from Nihon Nohyaku'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 Nihon Nohyaku's earnings potential is at least as good as it seems, and maybe even better! On the other hand, its EPS actually shrunk in the last twelve months. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you want to do dive deeper into Nihon Nohyaku, you'd also look into what risks it is currently facing. For example, we've found that Nihon Nohyaku has 3 warning signs (1 is significant!) that deserve your attention before going any further with your analysis.

This note has only looked at a single factor that sheds light on the nature of Nihon Nohyaku's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.