EltesLtd (TSE:3967) Posted Healthy Earnings But There Are Some Other Factors To Be Aware Of

Simply Wall St · 10/18 22:56

Last week's profit announcement from Eltes Co.,Ltd. (TSE:3967) was underwhelming for investors, despite headline numbers being robust. We think that the market might be paying attention to some underlying factors that they find to be concerning.

View our latest analysis for EltesLtd

earnings-and-revenue-history
TSE:3967 Earnings and Revenue History October 18th 2024

How Do Unusual Items Influence Profit?

To properly understand EltesLtd's profit results, we need to consider the JP¥62m 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. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. EltesLtd took a rather significant hit from unusual items in the year to August 2024. As a result, we can surmise that the unusual items made its statutory profit significantly weaker than it would otherwise be.

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

An Unusual Tax Situation

Just as we noted the unusual items, we must inform you that EltesLtd received a tax benefit which contributed JP¥101m to the bottom line. This is meaningful because companies usually pay tax rather than receive tax benefits. We're sure the company was pleased with its tax benefit. However, our data indicates that tax benefits can temporarily boost statutory profit in the year it is booked, but subsequently profit may fall back. In the likely event the tax benefit is not repeated, we'd expect to see its statutory profit levels drop, at least in the absence of strong growth. While we think it's good that the company has booked a tax benefit, it does mean that there's every chance the statutory profit will come in a lot higher than it would be if the income was adjusted for one-off factors.

Our Take On EltesLtd's Profit Performance

In its last report EltesLtd received a tax benefit which might make its profit look better than it really is on a underlying level. But on the other hand, it also saw an unusual item depress its profit. Based on these factors, it's hard to tell if EltesLtd's profits are a reasonable reflection of its underlying profitability. If you want to do dive deeper into EltesLtd, you'd also look into what risks it is currently facing. For instance, we've identified 3 warning signs for EltesLtd (1 shouldn't be ignored) you should be familiar with.

In this article we've looked at a number of factors that can impair the utility of profit numbers, as a guide to a business. 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. 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.