Sankyo Kasei's (TSE:8138) Solid Earnings Have Been Accounted For Conservatively

Sankyo Kasei Corporation's (TSE:8138) solid earnings announcement recently didn't do much to the stock price. We did some digging, and we think that investors are missing some encouraging factors in the underlying numbers.

See our latest analysis for Sankyo Kasei

How Do Unusual Items Influence Profit?

For anyone who wants to understand Sankyo Kasei's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by JP¥114m 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 Sankyo Kasei 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 Sankyo Kasei.

Our Take On Sankyo Kasei's Profit Performance

Because unusual items detracted from Sankyo Kasei's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Sankyo Kasei's earnings potential is at least as good as it seems, and maybe even better! Better yet, its EPS are growing strongly, which is nice to see. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. At Simply Wall St, we found 3 warning signs for Sankyo Kasei and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Sankyo Kasei's profit. But there are plenty of other ways to inform your opinion of a company. 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 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.