Mitsui DM SugarLtd's (TSE:2109) Conservative Accounting Might Explain Soft Earnings

The market for Mitsui DM Sugar Co.,Ltd.'s (TSE:2109) shares didn't move much after it posted weak earnings recently. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

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How Do Unusual Items Influence Profit?

To properly understand Mitsui DM SugarLtd's profit results, we need to consider the JP¥4.7b expense attributed 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 that's hardly a surprise given these line items are considered unusual. If Mitsui DM SugarLtd doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Mitsui DM SugarLtd.

Our Take On Mitsui DM SugarLtd's Profit Performance

Because unusual items detracted from Mitsui DM SugarLtd'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 Mitsui DM SugarLtd's earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share have grown at 49% per year over the last three years. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Case in point: We've spotted 3 warning signs for Mitsui DM SugarLtd you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Mitsui DM SugarLtd'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. 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.