We Like Hokkan Holdings' (TSE:5902) Earnings For More Than Just Statutory Profit

Despite posting healthy earnings, Hokkan Holdings Limited's (TSE:5902 ) stock has been quite weak. Our analysis suggests that there are some reasons for hope that investors should be aware of.

Check out our latest analysis for Hokkan Holdings

How Do Unusual Items Influence Profit?

To properly understand Hokkan Holdings' profit results, we need to consider the JP¥1.6b expense attributed 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 Hokkan Holdings 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 Hokkan Holdings.

Our Take On Hokkan Holdings' Profit Performance

Unusual items (expenses) detracted from Hokkan Holdings' earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Hokkan Holdings' statutory profit actually understates its earnings potential! And it's also positive that the company showed enough improvement to book a profit this year, after losing money 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. When we did our research, we found 4 warning signs for Hokkan Holdings (2 are a bit concerning!) that we believe deserve your full attention.

Today we've zoomed in on a single data point to better understand the nature of Hokkan Holdings' 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.