Sojitz's (TSE:2768) Earnings Are Of Questionable Quality

Despite posting some strong earnings, the market for Sojitz Corporation's (TSE:2768) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.

Our free stock report includes 2 warning signs investors should be aware of before investing in Sojitz. Read for free now.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Sojitz's profit received a boost of JP¥13b in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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 Sojitz doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

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 Sojitz's Profit Performance

Arguably, Sojitz's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Sojitz's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 46% per annum growth in EPS for the last three. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you want to do dive deeper into Sojitz, you'd also look into what risks it is currently facing. For instance, we've identified 2 warning signs for Sojitz (1 shouldn't be ignored) you should be familiar with.

Today we've zoomed in on a single data point to better understand the nature of Sojitz'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.

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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.