We Think Nippon Chuzo K. K's (TSE:5609) Robust Earnings Are Conservative

Nippon Chuzo K. K.'s (TSE:5609) earnings announcement last week was disappointing for investors, despite the decent profit numbers. Our analysis says that investors should be optimistic, as the strong profit is built on solid foundations.

Check out our latest analysis for Nippon Chuzo K. K

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Nippon Chuzo K. K's profit was reduced by JP¥393m, 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. 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 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

Because unusual items detracted from Nippon Chuzo K. K'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 Nippon Chuzo K. K's earnings potential is at least as good as it seems, and maybe even better! And the EPS is up 59% annually, over the last three years. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. So while earnings quality is important, it's equally important to consider the risks facing Nippon Chuzo K. K at this point in time. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of Nippon Chuzo K. K.

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. 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 that insiders are buying 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.