Sanrin's (TSE:7486) Earnings Seem To Be Promising

The market seemed underwhelmed by last week's earnings announcement from Sanrin Co., Ltd. (TSE:7486) despite the healthy numbers. We did some analysis to find out why and believe that investors might be missing some encouraging factors contained in the earnings.

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How Do Unusual Items Influence Profit?

Importantly, our data indicates that Sanrin's profit was reduced by JP¥111m, due to unusual items, over the last year. 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 that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Sanrin 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 Sanrin.

Our Take On Sanrin's Profit Performance

Because unusual items detracted from Sanrin's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Sanrin's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at 57% per year over the last three years. 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'd like to know more about Sanrin as a business, it's important to be aware of any risks it's facing. For instance, we've identified 3 warning signs for Sanrin (1 can't be ignored) you should be familiar with.

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