Some Investors May Be Willing To Look Past Osaka Steel's (TSE:5449) Soft Earnings

Shareholders appeared unconcerned with Osaka Steel Co., Ltd.'s (TSE:5449) 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

For anyone who wants to understand Osaka Steel's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by JP¥478m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. If Osaka Steel doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Osaka Steel.

Our Take On Osaka Steel's Profit Performance

Unusual items (expenses) detracted from Osaka Steel's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Osaka Steel's statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over the last year. 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. If you'd like to know more about Osaka Steel as a business, it's important to be aware of any risks it's facing. Be aware that Osaka Steel is showing 2 warning signs in our investment analysis and 1 of those shouldn't be ignored...

Today we've zoomed in on a single data point to better understand the nature of Osaka Steel'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. 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.