Why Nara Mold & Die's (KOSDAQ:051490) Shaky Earnings Are Just The Beginning Of Its Problems

A lackluster earnings announcement from Nara Mold & Die Co., Ltd. (KOSDAQ:051490) last week didn't sink the stock price. 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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How Do Unusual Items Influence Profit?

Importantly, our data indicates that Nara Mold & Die's profit received a boost of ₩461m in unusual items, over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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 Nara Mold & Die.

Our Take On Nara Mold & Die's Profit Performance

Arguably, Nara Mold & Die's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Nara Mold & Die'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. So while earnings quality is important, it's equally important to consider the risks facing Nara Mold & Die at this point in time. While conducting our analysis, we found that Nara Mold & Die has 4 warning signs and it would be unwise to ignore them.

Today we've zoomed in on a single data point to better understand the nature of Nara Mold & Die's 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. 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.