Nippon Kinzoku's (TSE:5491) Profits Appear To Have Quality Issues

Nippon Kinzoku Co., Ltd.'s (TSE:5491) healthy profit numbers didn't contain any surprises for investors. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

See our latest analysis for Nippon Kinzoku

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Nippon Kinzoku's profit received a boost of JP¥3.7b 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. Which is hardly surprising, given the name. Nippon Kinzoku had a rather significant contribution from unusual items relative to its profit to March 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

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

Our Take On Nippon Kinzoku's Profit Performance

As previously mentioned, Nippon Kinzoku's large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. As a result, we think it may well be the case that Nippon Kinzoku's underlying earnings power is lower than its statutory profit. The good news is that, its earnings per share increased by 69% in the last year. 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. So while earnings quality is important, it's equally important to consider the risks facing Nippon Kinzoku at this point in time. To that end, you should learn about the 3 warning signs we've spotted with Nippon Kinzoku (including 1 which is a bit concerning).

Today we've zoomed in on a single data point to better understand the nature of Nippon Kinzoku's profit. But there are plenty of other ways to inform your opinion of a company. 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.