Broadly speaking, profitable businesses are less risky than unprofitable ones. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. Today we'll focus on whether this year's statutory profits are a good guide to understanding YoshiconLtd (TYO:5280).
It's good to see that over the last twelve months YoshiconLtd made a profit of JP¥830.0m on revenue of JP¥13.5b. Below, you can see that both its revenue and its profit have fallen over the last three years.
Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. This article will focus on the impact unusual items have had on YoshiconLtd's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of YoshiconLtd.
How Do Unusual Items Influence Profit?
For anyone who wants to understand YoshiconLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from JP¥464m 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. 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, after all, that's exactly what the accounting terminology implies. We can see that YoshiconLtd's positive unusual items were quite significant relative to its profit in the year to September 2020. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.
Our Take On YoshiconLtd's Profit Performance
As we discussed above, we think the significant positive unusual item makes YoshiconLtd'searnings a poor guide to its underlying profitability. As a result, we think it may well be the case that YoshiconLtd's underlying earnings power is lower than its statutory profit. Sadly, its EPS was down over the last twelve months. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you'd like to know more about YoshiconLtd as a business, it's important to be aware of any risks it's facing. When we did our research, we found 5 warning signs for YoshiconLtd (2 can't be ignored!) that we believe deserve your full attention.
Today we've zoomed in on a single data point to better understand the nature of YoshiconLtd's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 that insiders are buying.
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This article by Simply Wall St is general in nature. 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.
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