Investors Can Find Comfort In Nippon Chuzo K. K's (TSE:5609) Earnings Quality

Shareholders appeared unconcerned with Nippon Chuzo K. K.'s (TSE:5609) lackluster earnings report last week. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

See our latest analysis for Nippon Chuzo K. K

How Do Unusual Items Influence Profit?

For anyone who wants to understand Nippon Chuzo K. K's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by JP¥136m 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. Assuming those unusual expenses don't come up again, we'd therefore expect Nippon Chuzo K. K 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 Nippon Chuzo K. K.

Our Take On Nippon Chuzo K. K's Profit Performance

Unusual items (expenses) detracted from Nippon Chuzo K. K's earnings over the last year, but we might see an improvement next year. Because of this, we think Nippon Chuzo K. K's earnings potential is at least as good as it seems, and maybe even better! And the EPS is up 28% annually, over the last three years. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Case in point: We've spotted 1 warning sign for Nippon Chuzo K. K you should be aware of.

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