Teikoku Tsushin Kogyo's (TSE:6763) Earnings Are Of Questionable Quality

Investors were disappointed with Teikoku Tsushin Kogyo Co., Ltd.'s (TSE:6763) earnings, despite the strong profit numbers. Our analysis uncovered some concerning factors that we believe the market might be paying attention to.

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The Impact Of Unusual Items On Profit

Importantly, our data indicates that Teikoku Tsushin Kogyo's profit received a boost of JP¥317m 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. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. If Teikoku Tsushin Kogyo 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 Teikoku Tsushin Kogyo.

Our Take On Teikoku Tsushin Kogyo's Profit Performance

Arguably, Teikoku Tsushin Kogyo's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Teikoku Tsushin Kogyo's statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 31% 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. If you want to do dive deeper into Teikoku Tsushin Kogyo, you'd also look into what risks it is currently facing. While conducting our analysis, we found that Teikoku Tsushin Kogyo has 1 warning sign and it would be unwise to ignore it.

This note has only looked at a single factor that sheds light on the nature of Teikoku Tsushin Kogyo's profit. But there are plenty of other ways to inform your opinion of a company. 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.