Should You Use Sapporo Clinical Laboratory's (TYO:9776) Statutory Earnings To Analyse It?

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. In this article, we'll look at how useful this year's statutory profit is, when analysing Sapporo Clinical Laboratory (TYO:9776).

While Sapporo Clinical Laboratory was able to generate revenue of JP¥17.2b in the last twelve months, we think its profit result of JP¥427.0m was more important. In the last few years its profit has fallen, although its revenue was steady, as you can see in the chart below.

View our latest analysis for Sapporo Clinical Laboratory

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 Sapporo Clinical Laboratory's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Sapporo Clinical Laboratory.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Sapporo Clinical Laboratory's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by JP¥131m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. If Sapporo Clinical Laboratory 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 Sapporo Clinical Laboratory's Profit Performance

Because unusual items detracted from Sapporo Clinical Laboratory'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 Sapporo Clinical Laboratory'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. 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 while earnings quality is important, it's equally important to consider the risks facing Sapporo Clinical Laboratory at this point in time. For instance, we've identified 3 warning signs for Sapporo Clinical Laboratory (1 is potentially serious) you should be familiar with.

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