CK SAN-ETSU's (TSE:5757) Soft Earnings Are Actually Better Than They Appear

Shareholders appeared unconcerned with CK SAN-ETSU Co., Ltd.'s (TSE:5757) lackluster earnings report last week. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

Check out our latest analysis for CK SAN-ETSU

The Impact Of Unusual Items On Profit

For anyone who wants to understand CK SAN-ETSU's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by JP¥2.2b 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, after all, that's exactly what the accounting terminology implies. If CK SAN-ETSU 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 CK SAN-ETSU.

Our Take On CK SAN-ETSU's Profit Performance

Because unusual items detracted from CK SAN-ETSU'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 CK SAN-ETSU's statutory profit actually understates its earnings potential! Better yet, its EPS are growing strongly, which is nice to see. 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. So while earnings quality is important, it's equally important to consider the risks facing CK SAN-ETSU at this point in time. In terms of investment risks, we've identified 2 warning signs with CK SAN-ETSU, and understanding these should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of CK SAN-ETSU'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. 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.