The market shrugged off the recent earnings report from Tanac Automation Co., Ltd. (SZSE:300461), despite the profit numbers being soft. However, we think the company is showing some signs that things are more promising than they seem.

See our latest analysis for Tanac Automation

How Do Unusual Items Influence Profit?

For anyone who wants to understand Tanac Automation's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥2.6m due 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, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Tanac Automation 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 Tanac Automation.

Our Take On Tanac Automation's Profit Performance

Unusual items (expenses) detracted from Tanac Automation's earnings over the last year, but we might see an improvement next year. Because of this, we think Tanac Automation's earnings potential is at least as good as it seems, and maybe even better! On the other hand, its EPS actually shrunk in the last twelve months. 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. If you want to do dive deeper into Tanac Automation, you'd also look into what risks it is currently facing. For example - Tanac Automation has 3 warning signs we think you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Tanac Automation's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 that insiders are buying.

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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.