Why Sagami Holdings' (TSE:9900) Earnings Are Better Than They Seem

The market seemed underwhelmed by last week's earnings announcement from Sagami Holdings Corporation (TSE:9900) despite the healthy numbers. Our analysis suggests that shareholders might be missing some positive underlying factors in the earnings report.

See our latest analysis for Sagami Holdings

How Do Unusual Items Influence Profit?

For anyone who wants to understand Sagami Holdings' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by JP¥452m 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 Sagami Holdings 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 Sagami Holdings.

Our Take On Sagami Holdings' Profit Performance

Because unusual items detracted from Sagami Holdings' earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Sagami Holdings' earnings potential is at least as good as it seems, and maybe even better! 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. So while earnings quality is important, it's equally important to consider the risks facing Sagami Holdings at this point in time. While conducting our analysis, we found that Sagami Holdings has 1 warning sign and it would be unwise to ignore it.

This note has only looked at a single factor that sheds light on the nature of Sagami Holdings' 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.