Arakawa Chemical Industries' (TSE:4968) Shareholders May Want To Dig Deeper Than Statutory Profit

The market shrugged off Arakawa Chemical Industries, Ltd.'s (TSE:4968) solid earnings report. We think that investors might be worried about some concerning underlying factors.

View our latest analysis for Arakawa Chemical Industries

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Arakawa Chemical Industries' profit received a boost of JP¥2.3b in unusual items, over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. Which is hardly surprising, given the name. Arakawa Chemical Industries had a rather significant contribution from unusual items relative to its profit to June 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

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 Arakawa Chemical Industries' Profit Performance

As we discussed above, we think the significant positive unusual item makes Arakawa Chemical Industries' earnings a poor guide to its underlying profitability. For this reason, we think that Arakawa Chemical Industries' statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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'd like to know more about Arakawa Chemical Industries as a business, it's important to be aware of any risks it's facing. Be aware that Arakawa Chemical Industries is showing 3 warning signs in our investment analysis and 1 of those shouldn't be ignored...

Today we've zoomed in on a single data point to better understand the nature of Arakawa Chemical Industries' profit. But there are plenty of other ways to inform your opinion of a company. 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.