Mazda Motor's (TSE:7261) Conservative Accounting Might Explain Soft Earnings

The most recent earnings report from Mazda Motor Corporation (TSE:7261) was disappointing for shareholders. Despite the soft profit numbers, our analysis has optimistic about the overall quality of the income statement.

See our latest analysis for Mazda Motor

How Do Unusual Items Influence Profit?

For anyone who wants to understand Mazda Motor's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by JP¥23b due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Mazda Motor 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 Mazda Motor's Profit Performance

Unusual items (expenses) detracted from Mazda Motor's earnings over the last year, but we might see an improvement next year. Because of this, we think Mazda Motor's earnings potential is at least as good as it seems, and maybe even better! And the EPS is up 58% annually, over the last three years. 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 Mazda Motor, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 2 warning signs for Mazda Motor you should know about.

Today we've zoomed in on a single data point to better understand the nature of Mazda Motor'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 with high insider ownership.

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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.