Takachiho KohekiLtd's (TSE:2676) Promising Earnings May Rest On Soft Foundations

Takachiho Koheki Co.,Ltd. (TSE:2676) announced strong profits, but the stock was stagnant. We did some digging, and we found some concerning factors in the details.

View our latest analysis for Takachiho KohekiLtd

How Do Unusual Items Influence Profit?

For anyone who wants to understand Takachiho KohekiLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from JP¥280m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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. If Takachiho KohekiLtd doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

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

Our Take On Takachiho KohekiLtd's Profit Performance

Arguably, Takachiho KohekiLtd's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Takachiho KohekiLtd's true underlying earnings power is actually less than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Takachiho KohekiLtd.

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