Some May Be Optimistic About Sugai Chemical Industry's (TSE:4120) Earnings

Soft earnings didn't appear to concern Sugai Chemical Industry Co., Ltd.'s (TSE:4120) shareholders over the last week. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

View our latest analysis for Sugai Chemical Industry

The Impact Of Unusual Items On Profit

For anyone who wants to understand Sugai Chemical Industry's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by JP¥260m 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. Sugai Chemical Industry took a rather significant hit from unusual items in the year to March 2024. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Sugai Chemical Industry.

Our Take On Sugai Chemical Industry's Profit Performance

As we discussed above, we think the significant unusual expense will make Sugai Chemical Industry's statutory profit lower than it would otherwise have been. Because of this, we think Sugai Chemical Industry's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! And on top of that, its earnings per share have grown at 62% per year over the last three years. 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 Sugai Chemical Industry at this point in time. For example, we've discovered 3 warning signs that you should run your eye over to get a better picture of Sugai Chemical Industry.

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