RACCOON HOLDINGS' (TSE:3031) Conservative Accounting Might Explain Soft Earnings

RACCOON HOLDINGS, Inc.'s (TSE:3031) earnings announcement last week didn't impress shareholders. While the headline numbers were soft, we believe that investors might be missing some encouraging factors.

View our latest analysis for RACCOON HOLDINGS

The Impact Of Unusual Items On Profit

For anyone who wants to understand RACCOON HOLDINGS' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by JP¥123m 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 RACCOON HOLDINGS to produce a higher profit next year, all else being equal.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On RACCOON HOLDINGS' Profit Performance

Because unusual items detracted from RACCOON HOLDINGS' earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that RACCOON HOLDINGS' statutory profit actually understates its earnings potential! And the EPS is up 16% annually, over the last three years. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. In terms of investment risks, we've identified 2 warning signs with RACCOON HOLDINGS, and understanding these should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of RACCOON HOLDINGS' 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. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.

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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.