Tay Two's (TSE:7610) Conservative Accounting Might Explain Soft Earnings

Tay Two Co., Ltd.'s (TSE:7610) stock was strong despite it releasing a soft earnings report last week. However, we think the company is showing some signs that things are more promising than they seem.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Tay Two's profit was reduced by JP¥160m, due to unusual items, over the last year. 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 Tay Two 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 Tay Two.

Our Take On Tay Two's Profit Performance

Unusual items (expenses) detracted from Tay Two's earnings over the last year, but we might see an improvement next year. Because of this, we think Tay Two'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. 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 want to do dive deeper into Tay Two, you'd also look into what risks it is currently facing. When we did our research, we found 4 warning signs for Tay Two (2 make us uncomfortable!) that we believe deserve your full attention.

This note has only looked at a single factor that sheds light on the nature of Tay Two's profit. But there are plenty of other ways to inform your opinion of a company. 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 with high insider ownership.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.