Investors Can Find Comfort In UACJ's (TSE:5741) Earnings Quality

Soft earnings didn't appear to concern UACJ Corporation's (TSE:5741) shareholders over the last week. We did some digging, and we believe the earnings are stronger than they seem.

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The Impact Of Unusual Items On Profit

For anyone who wants to understand UACJ's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by JP¥4.6b due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect UACJ to produce a higher profit next year, all else being equal.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On UACJ's Profit Performance

Because unusual items detracted from UACJ's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that UACJ's statutory profit actually understates its earnings potential! And on top of that, its earnings per share increased by 18% in the last year. 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. If you want to do dive deeper into UACJ, you'd also look into what risks it is currently facing. Our analysis shows 3 warning signs for UACJ (1 is potentially serious!) and we strongly recommend you look at them before investing.

Today we've zoomed in on a single data point to better understand the nature of UACJ's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 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.