Toyo Wharf & Warehouse (TSE:9351) Strong Profits May Be Masking Some Underlying Issues

Toyo Wharf & Warehouse Co., Ltd.'s (TSE:9351) robust recent earnings didn't do much to move the stock. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

See our latest analysis for Toyo Wharf & Warehouse

How Do Unusual Items Influence Profit?

To properly understand Toyo Wharf & Warehouse's profit results, we need to consider the JP¥406m gain attributed to unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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 Toyo Wharf & Warehouse's positive unusual items were quite significant relative to its profit in the year to September 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Toyo Wharf & Warehouse.

Our Take On Toyo Wharf & Warehouse's Profit Performance

As we discussed above, we think the significant positive unusual item makes Toyo Wharf & Warehouse's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Toyo Wharf & Warehouse's underlying earnings power is lower than its statutory profit. The good news is that, its earnings per share increased by 20% 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 Toyo Wharf & Warehouse at this point in time. For example, we've found that Toyo Wharf & Warehouse has 5 warning signs (2 are a bit unpleasant!) that deserve your attention before going any further with your analysis.

This note has only looked at a single factor that sheds light on the nature of Toyo Wharf & Warehouse's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. 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.