There May Be Underlying Issues With The Quality Of Aichi Tokei Denki's (TSE:7723) Earnings

Despite announcing strong earnings, Aichi Tokei Denki Co., Ltd.'s (TSE:7723) stock was sluggish. We think that the market might be paying attention to some underlying factors that they find to be concerning.

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How Do Unusual Items Influence Profit?

For anyone who wants to understand Aichi Tokei Denki's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from JP¥466m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

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

Our Take On Aichi Tokei Denki's Profit Performance

We'd posit that Aichi Tokei Denki's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Aichi Tokei Denki's true underlying earnings power is actually less than its statutory profit. Nonetheless, it's still worth noting that its earnings per share have grown at 42% over the last three years. 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. If you want to do dive deeper into Aichi Tokei Denki, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 1 warning sign for Aichi Tokei Denki you should know about.

This note has only looked at a single factor that sheds light on the nature of Aichi Tokei Denki'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.