Why Osaka Steel's (TSE:5449) Earnings Are Better Than They Seem

The market seemed underwhelmed by last week's earnings announcement from Osaka Steel Co., Ltd. (TSE:5449) despite the healthy numbers. Our analysis suggests that shareholders might be missing some positive underlying factors in the earnings report.

Check out our latest analysis for Osaka Steel

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¥836m 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. Assuming those unusual expenses don't come up again, we'd therefore expect Osaka Steel 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 Osaka Steel.

Our Take On Osaka Steel's Profit Performance

Because unusual items detracted from Osaka Steel'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 Osaka Steel'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. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. While conducting our analysis, we found that Osaka Steel has 1 warning sign and it would be unwise to ignore it.

This note has only looked at a single factor that sheds light on the nature of Osaka Steel'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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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.