Excite Holdings' (TSE:5571) Conservative Accounting Might Explain Soft Earnings

Investors were disappointed with the weak earnings posted by Excite Holdings Co., Ltd. (TSE:5571 ). While the headline numbers were soft, we believe that investors might be missing some encouraging factors.

View our latest analysis for Excite Holdings

The Impact Of Unusual Items On Profit

To properly understand Excite Holdings' profit results, we need to consider the JP¥69m 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 Excite Holdings 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 Excite Holdings.

Our Take On Excite Holdings' Profit Performance

Unusual items (expenses) detracted from Excite Holdings' earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Excite Holdings' statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over the last year. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of Excite Holdings.

Today we've zoomed in on a single data point to better understand the nature of Excite Holdings' 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.