Statutory Profit Doesn't Reflect How Good Mecaro's (KOSDAQ:241770) Earnings Are

The subdued stock price reaction suggests that Mecaro Co., Ltd.'s (KOSDAQ:241770) strong earnings didn't offer any surprises. We think that investors have missed some encouraging factors underlying the profit figures.

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The Impact Of Unusual Items On Profit

To properly understand Mecaro's profit results, we need to consider the ₩1.3b expense attributed to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. If Mecaro doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Mecaro.

Our Take On Mecaro's Profit Performance

Because unusual items detracted from Mecaro'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 Mecaro's statutory profit actually understates its earnings potential! And one can definitely find a positive in the fact that it made a profit this year, despite losing money last year. 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. If you'd like to know more about Mecaro as a business, it's important to be aware of any risks it's facing. For example, Mecaro has 2 warning signs (and 1 which is potentially serious) we think you should know about.

This note has only looked at a single factor that sheds light on the nature of Mecaro'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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.