Kansai Electric Power Company's (TSE:9503) Strong Earnings Are Of Good Quality

When companies post strong earnings, the stock generally performs well, just like The Kansai Electric Power Company, Incorporated's (TSE:9503) stock has recently. We have done some analysis, and we found several positive factors beyond the profit numbers.

See our latest analysis for Kansai Electric Power Company

The Impact Of Unusual Items On Profit

For anyone who wants to understand Kansai Electric Power Company's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by JP¥125b due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Kansai Electric Power Company to produce a higher profit next year, all else being equal.

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 Kansai Electric Power Company's Profit Performance

Because unusual items detracted from Kansai Electric Power Company's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Kansai Electric Power Company's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at an extremely impressive rate over the last three years. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Every company has risks, and we've spotted 3 warning signs for Kansai Electric Power Company (of which 1 is a bit unpleasant!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of Kansai Electric Power Company'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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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.