Weak Statutory Earnings May Not Tell The Whole Story For Okayamaken Freight Transportation (TSE:9063)

The subdued market reaction suggests that Okayamaken Freight Transportation Co., Ltd.'s (TSE:9063) recent earnings didn't contain any surprises. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

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The Impact Of Unusual Items On Profit

For anyone who wants to understand Okayamaken Freight Transportation's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from JP¥236m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. 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 Okayamaken Freight Transportation.

Our Take On Okayamaken Freight Transportation's Profit Performance

Arguably, Okayamaken Freight Transportation's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Okayamaken Freight Transportation's true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased in 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. At Simply Wall St, we found 2 warning signs for Okayamaken Freight Transportation and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Okayamaken Freight Transportation'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. 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.