Are Nippon Computer Dynamics's (TYO:4783) Statutory Earnings A Good Guide To Its Underlying Profitability?

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. 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 Nippon Computer Dynamics (TYO:4783).

While Nippon Computer Dynamics was able to generate revenue of JP¥18.0b in the last twelve months, we think its profit result of JP¥406.0m was more important. As you can see in the chart below, its profit has declined over the last three years, even though its revenue has increased.

View our latest analysis for Nippon Computer Dynamics

Not all profits are equal, and we can learn more about the nature of a company's past profitability by diving deeper into the financial statements. This article will discuss how unusual items have impacted Nippon Computer Dynamics' most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Nippon Computer Dynamics.

The Impact Of Unusual Items On Profit

To properly understand Nippon Computer Dynamics' profit results, we need to consider the JP¥45m gain attributed to unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And that's as you'd expect, given these boosts are described as 'unusual'. If Nippon Computer Dynamics doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On Nippon Computer Dynamics' Profit Performance

Arguably, Nippon Computer Dynamics' statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Nippon Computer Dynamics' true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased in 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'd like to know more about Nippon Computer Dynamics as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 2 warning signs for Nippon Computer Dynamics you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Nippon Computer Dynamics' 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. 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 that insiders are buying to be useful.

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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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