Iriso Electronics' (TSE:6908) Conservative Accounting Might Explain Soft Earnings

Iriso Electronics Co., Ltd.'s (TSE:6908) 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 Iriso Electronics

How Do Unusual Items Influence Profit?

To properly understand Iriso Electronics' profit results, we need to consider the JP¥624m expense attributed 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 that's hardly a surprise given these line items are considered unusual. If Iriso Electronics 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 Iriso Electronics' Profit Performance

Because unusual items detracted from Iriso Electronics' earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Iriso Electronics' 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'd like to know more about Iriso Electronics as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that Iriso Electronics has 2 warning signs and it would be unwise to ignore these.

This note has only looked at a single factor that sheds light on the nature of Iriso Electronics' 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.