We Like Zappallas' (TSE:3770) Earnings For More Than Just Statutory Profit

The market seemed underwhelmed by last week's earnings announcement from Zappallas, Inc. (TSE:3770) despite the healthy numbers. We did some digging, and we think that investors are missing some encouraging factors in the underlying numbers.

Check out our latest analysis for Zappallas

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Zappallas' profit was reduced by JP¥88m, due to unusual items, over the last year. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. 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. If Zappallas 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 Zappallas.

Our Take On Zappallas' Profit Performance

Unusual items (expenses) detracted from Zappallas' earnings over the last year, but we might see an improvement next year. Because of this, we think Zappallas' earnings potential is at least as good as it seems, and maybe even better! And one can definitely find a positive in the fact that it made a profit this year, despite 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. In terms of investment risks, we've identified 3 warning signs with Zappallas, and understanding these should be part of your investment process.

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

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