Investors Can Find Comfort In Di-Nikko Engineering's (TSE:6635) Earnings Quality

Soft earnings didn't appear to concern Di-Nikko Engineering Co., Ltd.'s (TSE:6635) shareholders over the last week. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

View our latest analysis for Di-Nikko Engineering

How Do Unusual Items Influence Profit?

For anyone who wants to understand Di-Nikko Engineering's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by JP¥81m due 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, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Di-Nikko Engineering 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 Di-Nikko Engineering.

Our Take On Di-Nikko Engineering's Profit Performance

Because unusual items detracted from Di-Nikko Engineering's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Di-Nikko Engineering's earnings potential is at least as good as it seems, and maybe even better! And the EPS is up 8.3% annually, over the last three years. 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 Di-Nikko Engineering, you'd also look into what risks it is currently facing. To that end, you should learn about the 4 warning signs we've spotted with Di-Nikko Engineering (including 1 which is concerning).

This note has only looked at a single factor that sheds light on the nature of Di-Nikko Engineering'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.