Investors Can Find Comfort In Tomen Devices' (TSE:2737) Earnings Quality

Tomen Devices Corporation's (TSE:2737) recent soft profit numbers didn't appear to worry shareholders, as the stock price showed strength. We think that investors might be looking at some positive factors beyond the earnings numbers.

View our latest analysis for Tomen Devices

The Impact Of Unusual Items On Profit

To properly understand Tomen Devices' profit results, we need to consider the JP¥3.7b expense attributed to unusual items. 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. Assuming those unusual expenses don't come up again, we'd therefore expect Tomen Devices to produce a higher profit next year, all else being equal.

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

Our Take On Tomen Devices' Profit Performance

Unusual items (expenses) detracted from Tomen Devices' earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Tomen Devices' statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over the 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. If you want to do dive deeper into Tomen Devices, you'd also look into what risks it is currently facing. In terms of investment risks, we've identified 3 warning signs with Tomen Devices, and understanding these should be part of your investment process.

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

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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.