Earnings Troubles May Signal Larger Issues for Daiki Aluminium Industry (TSE:5702) Shareholders

Investors were disappointed by Daiki Aluminium Industry Co., Ltd.'s (TSE:5702 ) latest earnings release. We did some analysis, and found that there are some reasons to be cautious about the headline numbers.

See our latest analysis for Daiki Aluminium Industry

How Do Unusual Items Influence Profit?

For anyone who wants to understand Daiki Aluminium Industry's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from JP¥1.2b worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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. If Daiki Aluminium Industry doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Daiki Aluminium Industry.

Our Take On Daiki Aluminium Industry's Profit Performance

Arguably, Daiki Aluminium Industry's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Daiki Aluminium Industry's true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Our analysis shows 4 warning signs for Daiki Aluminium Industry (1 can't be ignored!) and we strongly recommend you look at these bad boys before investing.

This note has only looked at a single factor that sheds light on the nature of Daiki Aluminium Industry'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. 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.