Shareholders Can Be Confident That Flexsteel Industries' (NASDAQ:FLXS) Earnings Are High Quality

Flexsteel Industries, Inc.'s (NASDAQ:FLXS) earnings announcement last week was disappointing for investors, despite the decent profit numbers. We did some digging and actually think they are being unnecessarily pessimistic.

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The Impact Of Unusual Items On Profit

To properly understand Flexsteel Industries' profit results, we need to consider the US$4.6m 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. Assuming those unusual expenses don't come up again, we'd therefore expect Flexsteel Industries 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 Flexsteel Industries' Profit Performance

Unusual items (expenses) detracted from Flexsteel Industries' earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Flexsteel Industries' statutory profit actually understates its earnings potential! And on top of that, its earnings per share increased by 65% in the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. So while earnings quality is important, it's equally important to consider the risks facing Flexsteel Industries at this point in time. Our analysis shows 3 warning signs for Flexsteel Industries (1 is potentially serious!) and we strongly recommend you look at these before investing.

Today we've zoomed in on a single data point to better understand the nature of Flexsteel Industries' 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 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.