Some May Be Optimistic About Nippo's (TSE:9913) Earnings

Soft earnings didn't appear to concern Nippo Ltd.'s (TSE:9913) shareholders over the last week. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

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How Do Unusual Items Influence Profit?

Importantly, our data indicates that Nippo's profit was reduced by JP¥459m, due to unusual items, over the last year. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. If Nippo doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

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

Our Take On Nippo's Profit Performance

Unusual items (expenses) detracted from Nippo's earnings over the last year, but we might see an improvement next year. Because of this, we think Nippo's earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share have grown at 37% per year 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. So while earnings quality is important, it's equally important to consider the risks facing Nippo at this point in time. You'd be interested to know, that we found 2 warning signs for Nippo and you'll want to know about these bad boys.

This note has only looked at a single factor that sheds light on the nature of Nippo'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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.