Grandy House's (TSE:8999) Soft Earnings Don't Show The Whole Picture

Shareholders appeared unconcerned with Grandy House Corporation's (TSE:8999) lackluster earnings report last week. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

Check out our latest analysis for Grandy House

How Do Unusual Items Influence Profit?

To properly understand Grandy House's profit results, we need to consider the JP¥114m expense attributed to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. 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 Grandy House 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 Grandy House.

Our Take On Grandy House's Profit Performance

Unusual items (expenses) detracted from Grandy House's earnings over the last year, but we might see an improvement next year. Because of this, we think Grandy House's earnings potential is at least as good as it seems, and maybe even better! On the other hand, its EPS actually shrunk in the last twelve months. 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. So while earnings quality is important, it's equally important to consider the risks facing Grandy House at this point in time. Case in point: We've spotted 4 warning signs for Grandy House you should be mindful of and 2 of these bad boys are concerning.

This note has only looked at a single factor that sheds light on the nature of Grandy House'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.