Investors Can Find Comfort In Y.C.C. Parts Mfg's (TWSE:1339) Earnings Quality

The market for Y.C.C. Parts Mfg. Co., Ltd.'s (TWSE:1339) shares didn't move much after it posted weak earnings recently. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

The Impact Of Unusual Items On Profit

To properly understand Y.C.C. Parts Mfg's profit results, we need to consider the NT$68m expense attributed 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 Y.C.C. Parts Mfg to produce a higher profit next year, all else being equal.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Y.C.C. Parts Mfg.

Our Take On Y.C.C. Parts Mfg's Profit Performance

Unusual items (expenses) detracted from Y.C.C. Parts Mfg's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Y.C.C. Parts Mfg'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. While it's very important to consider the profit and loss statement, you can also learn a lot about a company by looking at its balance sheet. If you're interested we have a graphic representation of Y.C.C. Parts Mfg's balance sheet.

This note has only looked at a single factor that sheds light on the nature of Y.C.C. Parts Mfg'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.