Nishi-Nippon Railroad's (TSE:9031) Solid Earnings May Rest On Weak Foundations

Nishi-Nippon Railroad Co., Ltd.'s (TSE:9031) healthy profit numbers didn't contain any surprises for investors. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

View our latest analysis for Nishi-Nippon Railroad

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Nishi-Nippon Railroad's profit received a boost of JP¥15b in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And, after all, that's exactly what the accounting terminology implies. We can see that Nishi-Nippon Railroad's positive unusual items were quite significant relative to its profit in the year to March 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

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 Nishi-Nippon Railroad's Profit Performance

As we discussed above, we think the significant positive unusual item makes Nishi-Nippon Railroad's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Nishi-Nippon Railroad's underlying earnings power is lower than its statutory profit. The good news is that, its earnings per share increased by 35% in the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. So while earnings quality is important, it's equally important to consider the risks facing Nishi-Nippon Railroad at this point in time. For instance, we've identified 3 warning signs for Nishi-Nippon Railroad (2 are potentially serious) you should be familiar with.

Today we've zoomed in on a single data point to better understand the nature of Nishi-Nippon Railroad'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. 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.