Does S.IshimitsuLtd's (TYO:2750) Statutory Profit Adequately Reflect Its Underlying Profit?

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. 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. Today we'll focus on whether this year's statutory profits are a good guide to understanding S.IshimitsuLtd (TYO:2750).

It's good to see that over the last twelve months S.IshimitsuLtd made a profit of JP¥179.0m on revenue of JP¥37.7b. As you can see below, its profit has actually declined over the last three years, even though its revenue was flat.

View our latest analysis for S.IshimitsuLtd

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 focus on the impact unusual items have had on S.IshimitsuLtd's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of S.IshimitsuLtd.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that S.IshimitsuLtd's profit was reduced by JP¥72m, due to unusual items, over the last year. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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 S.IshimitsuLtd to produce a higher profit next year, all else being equal.

Our Take On S.IshimitsuLtd's Profit Performance

Unusual items (expenses) detracted from S.IshimitsuLtd's earnings over the last year, but we might see an improvement next year. Because of this, we think S.IshimitsuLtd's earnings potential is at least as good as it seems, and maybe even better! On the other hand, its EPS actually shrunk in the last twelve months. 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 want to do dive deeper into S.IshimitsuLtd, you'd also look into what risks it is currently facing. Our analysis shows 4 warning signs for S.IshimitsuLtd (1 can't be ignored!) and we strongly recommend you look at them before investing.

This note has only looked at a single factor that sheds light on the nature of S.IshimitsuLtd'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 that insiders are buying.

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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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