Should You Use Takamisawa Cybernetics Company's (TYO:6424) Statutory Earnings To Analyse It?

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. Today we'll focus on whether this year's statutory profits are a good guide to understanding Takamisawa Cybernetics Company (TYO:6424).

It's good to see that over the last twelve months Takamisawa Cybernetics Company made a profit of JP¥372.0m on revenue of JP¥14.4b.

View our latest analysis for Takamisawa Cybernetics Company

Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. This article will focus on the impact unusual items have had on Takamisawa Cybernetics Company's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Takamisawa Cybernetics Company.

How Do Unusual Items Influence Profit?

To properly understand Takamisawa Cybernetics Company's profit results, we need to consider the JP¥81m expense attributed 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 Takamisawa Cybernetics Company to produce a higher profit next year, all else being equal.

Our Take On Takamisawa Cybernetics Company's Profit Performance

Unusual items (expenses) detracted from Takamisawa Cybernetics Company's earnings over the last year, but we might see an improvement next year. Because of this, we think Takamisawa Cybernetics Company's earnings potential is at least as good as it seems, and maybe even better! And one can definitely find a positive in the fact that it made a profit this year, despite losing money last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So while earnings quality is important, it's equally important to consider the risks facing Takamisawa Cybernetics Company at this point in time. To help with this, we've discovered 3 warning signs (2 shouldn't be ignored!) that you ought to be aware of before buying any shares in Takamisawa Cybernetics Company.

This note has only looked at a single factor that sheds light on the nature of Takamisawa Cybernetics Company's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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. 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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