Are Hatsuho ShoujiLtd's (TYO:7425) Statutory Earnings A Good Reflection Of Its Earnings Potential?

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. This article will consider whether Hatsuho ShoujiLtd's (TYO:7425) statutory profits are a good guide to its underlying earnings.

We like the fact that Hatsuho ShoujiLtd made a profit of JP¥216.0m on its revenue of JP¥29.1b, in the last year.

See our latest analysis for Hatsuho ShoujiLtd

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. This article will discuss how unusual items have impacted Hatsuho ShoujiLtd's most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Hatsuho ShoujiLtd.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Hatsuho ShoujiLtd's profit was reduced by JP¥100m, due to unusual items, over the last year. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. 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. If Hatsuho ShoujiLtd doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On Hatsuho ShoujiLtd's Profit Performance

Unusual items (expenses) detracted from Hatsuho ShoujiLtd's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Hatsuho ShoujiLtd's statutory profit actually understates its earnings potential! 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 Hatsuho ShoujiLtd, you'd also look into what risks it is currently facing. While conducting our analysis, we found that Hatsuho ShoujiLtd has 3 warning signs and it would be unwise to ignore them.

This note has only looked at a single factor that sheds light on the nature of Hatsuho ShoujiLtd'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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