Should You Use Century21 Real Estate of Japan's (TYO:8898) Statutory Earnings To Analyse It?

Broadly speaking, profitable businesses are less risky than unprofitable ones. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. In this article, we'll look at how useful this year's statutory profit is, when analysing Century21 Real Estate of Japan (TYO:8898).

It's good to see that over the last twelve months Century21 Real Estate of Japan made a profit of JP¥503.0m on revenue of JP¥3.84b. The chart below shows that both revenue and profit have declined over the last three years.

Check out our latest analysis for Century21 Real Estate of Japan

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. This article will focus on the impact unusual items have had on Century21 Real Estate of Japan's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Century21 Real Estate of Japan.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Century21 Real Estate of Japan's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by JP¥200m due 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, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Century21 Real Estate of Japan to produce a higher profit next year, all else being equal.

Our Take On Century21 Real Estate of Japan's Profit Performance

Because unusual items detracted from Century21 Real Estate of Japan's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Century21 Real Estate of Japan's earnings potential is at least as good as it seems, and maybe even better! Unfortunately, though, its earnings per share actually fell back over the 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Be aware that Century21 Real Estate of Japan is showing 2 warning signs in our investment analysis and 1 of those shouldn't be ignored...

This note has only looked at a single factor that sheds light on the nature of Century21 Real Estate of Japan'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 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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