We Think You Should Be Aware Of Some Concerning Factors In Y.C.C. Parts Mfg's (TWSE:1339) Earnings

Y.C.C. Parts Mfg. Co., Ltd. (TWSE:1339) just released a solid earnings report, and the stock displayed some strength. Despite this, our analysis suggests that there are some factors weakening the foundations of those good profit numbers.

See our latest analysis for Y.C.C. Parts Mfg

The Impact Of Unusual Items On Profit

For anyone who wants to understand Y.C.C. Parts Mfg's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from NT$42m 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 analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. 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 Y.C.C. Parts Mfg.

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

We'd posit that Y.C.C. Parts Mfg's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Y.C.C. Parts Mfg's true underlying earnings power is actually less than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. 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. Just as investors must consider earnings, it is also important to take into account the strength of a company's balance sheet. If you're interested we have a graphic representation of Y.C.C. Parts Mfg's balance sheet.

Today we've zoomed in on a single data point to better understand the nature of Y.C.C. Parts Mfg'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 that insiders are buying 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.