Shareholders Can Be Confident That Hankyu Hanshin Holdings' (TSE:9042) Earnings Are High Quality

Even though Hankyu Hanshin Holdings, Inc.'s (TSE:9042) recent earnings release was robust, the market didn't seem to notice. We think that investors have missed some encouraging factors underlying the profit figures.

View our latest analysis for Hankyu Hanshin Holdings

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Hankyu Hanshin Holdings' profit was reduced by JP¥25b, due to unusual items, over the last year. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. If Hankyu Hanshin Holdings 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 Hankyu Hanshin Holdings' Profit Performance

Unusual items (expenses) detracted from Hankyu Hanshin Holdings' earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Hankyu Hanshin Holdings' statutory profit actually understates its earnings potential! And on top of that, its earnings per share increased by 45% 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 Hankyu Hanshin Holdings at this point in time. Case in point: We've spotted 2 warning signs for Hankyu Hanshin Holdings you should be mindful of and 1 of these doesn't sit too well with us.

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