We Think Sanyo Chemical Industries' (TSE:4471) Healthy Earnings Might Be Conservative

The market seemed underwhelmed by last week's earnings announcement from Sanyo Chemical Industries, Ltd. (TSE:4471) despite the healthy numbers. We did some digging, and we think that investors are missing some encouraging factors in the underlying numbers.

We've discovered 2 warning signs about Sanyo Chemical Industries. View them for free.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Sanyo Chemical Industries' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by JP¥3.2b 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. Assuming those unusual expenses don't come up again, we'd therefore expect Sanyo Chemical Industries to produce a higher profit next year, all else being equal.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Sanyo Chemical Industries' Profit Performance

Unusual items (expenses) detracted from Sanyo Chemical Industries' earnings over the last year, but we might see an improvement next year. Because of this, we think Sanyo Chemical Industries' earnings potential is at least as good as it seems, and maybe even better! And it's also positive that the company showed enough improvement to book a profit this year, after losing money last year. 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. If you want to do dive deeper into Sanyo Chemical Industries, you'd also look into what risks it is currently facing. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of Sanyo Chemical Industries.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.