Solid Earnings Reflect Felissimo's (TSE:3396) Strength As A Business

Even though Felissimo Corporation's (TSE:3396) recent earnings release was robust, the market didn't seem to notice. Our analysis suggests that investors might be missing some promising details.

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How Do Unusual Items Influence Profit?

To properly understand Felissimo's profit results, we need to consider the JP¥37m expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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. If Felissimo doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Felissimo.

Our Take On Felissimo's Profit Performance

Unusual items (expenses) detracted from Felissimo's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Felissimo's statutory profit actually understates its earnings potential! And it's also positive that the company showed enough improvement to book a profit this year, after losing money last year. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. For example - Felissimo has 2 warning signs we think you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Felissimo's profit. 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. 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.