Why System LocationLtd's (TSE:2480) Earnings Are Better Than They Seem

The market seemed underwhelmed by last week's earnings announcement from System Location Co.,Ltd. (TSE:2480) despite the healthy numbers. We did some digging, and we think that investors are missing some encouraging factors in the underlying numbers.

See our latest analysis for System LocationLtd

How Do Unusual Items Influence Profit?

To properly understand System LocationLtd's profit results, we need to consider the JP¥96m expense attributed 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 that's hardly a surprise given these line items are considered unusual. If System LocationLtd 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 System LocationLtd.

Our Take On System LocationLtd's Profit Performance

Unusual items (expenses) detracted from System LocationLtd's earnings over the last year, but we might see an improvement next year. Because of this, we think System LocationLtd's earnings potential is at least as good as it seems, and maybe even better! 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. So while earnings quality is important, it's equally important to consider the risks facing System LocationLtd at this point in time. For example - System LocationLtd has 1 warning sign we think you should be aware of.

This note has only looked at a single factor that sheds light on the nature of System LocationLtd'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. 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.