Nihon Dempa Kogyo's (TSE:6779) Conservative Accounting Might Explain Soft Earnings

Nihon Dempa Kogyo Co., Ltd.'s (TSE:6779) earnings announcement last week didn't impress shareholders. While the headline numbers were soft, we believe that investors might be missing some encouraging factors.

We've discovered 2 warning signs about Nihon Dempa Kogyo. View them for free.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Nihon Dempa Kogyo's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by JP¥534m due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. 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. If Nihon Dempa Kogyo doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Nihon Dempa Kogyo's Profit Performance

Unusual items (expenses) detracted from Nihon Dempa Kogyo's earnings over the last year, but we might see an improvement next year. Because of this, we think Nihon Dempa Kogyo's earnings potential is at least as good as it seems, and maybe even better! 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'd like to know more about Nihon Dempa Kogyo as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 2 warning signs for Nihon Dempa Kogyo you should know about.

This note has only looked at a single factor that sheds light on the nature of Nihon Dempa Kogyo'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.