Impressive Earnings May Not Tell The Whole Story For Daito KounLtd (TSE:9367)

Despite posting some strong earnings, the market for Daito Koun Co.,Ltd.'s (TSE:9367) stock hasn't moved much. Our analysis suggests that shareholders have noticed something concerning in the numbers.

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The Impact Of Unusual Items On Profit

For anyone who wants to understand Daito KounLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from JP¥101m worth of 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. 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 Daito KounLtd.

Our Take On Daito KounLtd's Profit Performance

Arguably, Daito KounLtd's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Daito KounLtd's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 27% EPS growth 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. 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. Every company has risks, and we've spotted 3 warning signs for Daito KounLtd (of which 2 can't be ignored!) you should know about.

This note has only looked at a single factor that sheds light on the nature of Daito KounLtd's profit. But there are plenty of other ways to inform your opinion of a company. 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.