Tokyo Theatres Company's (TSE:9633) Earnings Quality Is Low

Shareholders didn't appear too concerned by Tokyo Theatres Company, Incorporated's (TSE:9633) weak earnings. We did some analysis and found some concerning details beneath the statutory profit number.

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The Impact Of Unusual Items On Profit

For anyone who wants to understand Tokyo Theatres Company's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from JP¥627m worth of unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And that's as you'd expect, given these boosts are described as 'unusual'. We can see that Tokyo Theatres Company's positive unusual items were quite significant relative to its profit in the year to September 2025. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

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An Unusual Tax Situation

Just as we noted the unusual items, we must inform you that Tokyo Theatres Company received a tax benefit which contributed JP¥291m to the bottom line. It's always a bit noteworthy when a company is paid by the tax man, rather than paying the tax man. We're sure the company was pleased with its tax benefit. However, our data indicates that tax benefits can temporarily boost statutory profit in the year it is booked, but subsequently profit may fall back. Assuming the tax benefit is not repeated every year, we could see its profitability drop noticeably, all else being equal. So while we think it's great to receive a tax benefit, it does tend to imply an increased risk that the statutory profit overstates the sustainable earnings power of the business.

Our Take On Tokyo Theatres Company's Profit Performance

In the last year Tokyo Theatres Company received a tax benefit, which boosted its profit in a way that might not be much more sustainable than turning prime farmland into gas fields. Furthermore, it also benefitted from a positive unusual item, which boosted the profit result even higher. Considering all this we'd argue Tokyo Theatres Company's profits probably give an overly generous impression of its sustainable level of profitability. If you'd like to know more about Tokyo Theatres Company as a business, it's important to be aware of any risks it's facing. You'd be interested to know, that we found 3 warning signs for Tokyo Theatres Company and you'll want to know about them.

Our examination of Tokyo Theatres Company has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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. 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.