Does Sanyu ConstructionLtd's (TYO:1841) Statutory Profit Adequately Reflect Its Underlying Profit?

Broadly speaking, profitable businesses are less risky than unprofitable ones. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. In this article, we'll look at how useful this year's statutory profit is, when analysing Sanyu ConstructionLtd (TYO:1841).

While Sanyu ConstructionLtd was able to generate revenue of JP¥8.76b in the last twelve months, we think its profit result of JP¥353.0m was more important.

See our latest analysis for Sanyu ConstructionLtd

Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. This article will focus on the impact unusual items have had on Sanyu ConstructionLtd's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Sanyu ConstructionLtd.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Sanyu ConstructionLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from JP¥58m worth of 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. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Our Take On Sanyu ConstructionLtd's Profit Performance

We'd posit that Sanyu ConstructionLtd's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Sanyu ConstructionLtd's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 63% EPS growth in the last year. 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. If you'd like to know more about Sanyu ConstructionLtd as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 2 warning signs for Sanyu ConstructionLtd you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Sanyu ConstructionLtd's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 that insiders are buying to be useful.

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This article by Simply Wall St is general in nature. 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.
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