Shareholders Can Be Confident That Tay Two's (TSE:7610) Earnings Are High Quality

Even though Tay Two Co., Ltd.'s (TSE:7610) 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?

For anyone who wants to understand Tay Two's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by JP¥146m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Tay Two to produce a higher profit next year, all else being equal.

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

Our Take On Tay Two's Profit Performance

Because unusual items detracted from Tay Two's 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 Tay Two's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at an extremely impressive rate over the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. So while earnings quality is important, it's equally important to consider the risks facing Tay Two at this point in time. To that end, you should learn about the 4 warning signs we've spotted with Tay Two (including 1 which shouldn't be ignored).

Today we've zoomed in on a single data point to better understand the nature of Tay Two'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 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.