There May Be Underlying Issues With The Quality Of Koryojyuhan's (TSE:3495) Earnings
Despite posting some strong earnings, the market for Koryojyuhan Co., Ltd.'s (TSE:3495) stock hasn't moved much. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.
How Do Unusual Items Influence Profit?
To properly understand Koryojyuhan's profit results, we need to consider the JP¥395m gain attributed to unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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. Koryojyuhan had a rather significant contribution from unusual items relative to its profit to September 2025. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger 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 Koryojyuhan.
Our Take On Koryojyuhan's Profit Performance
As we discussed above, we think the significant positive unusual item makes Koryojyuhan's earnings a poor guide to its underlying profitability. For this reason, we think that Koryojyuhan's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. But the good news is that its EPS growth over the last three years has been very impressive. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Case in point: We've spotted 4 warning signs for Koryojyuhan you should be mindful of and 1 of them makes us a bit uncomfortable.
This note has only looked at a single factor that sheds light on the nature of Koryojyuhan's profit. 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. 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.