Weak Statutory Earnings May Not Tell The Whole Story For OIZUMI (TSE:6428)

The market wasn't impressed with the soft earnings from OIZUMI Corporation (TSE:6428) recently. Our analysis has found some reasons to be concerned, beyond the weak headline numbers.

View our latest analysis for OIZUMI

The Impact Of Unusual Items On Profit

Importantly, our data indicates that OIZUMI's profit received a boost of JP¥692m in unusual items, over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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, after all, that's exactly what the accounting terminology implies. OIZUMI had a rather significant contribution from unusual items relative to its profit to September 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

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

Our Take On OIZUMI's Profit Performance

As previously mentioned, OIZUMI's large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. As a result, we think it may well be the case that OIZUMI's underlying earnings power is lower 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. So while earnings quality is important, it's equally important to consider the risks facing OIZUMI at this point in time. In terms of investment risks, we've identified 3 warning signs with OIZUMI, 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 OIZUMI'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 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.