Investors Can Find Comfort In Shobunsha Holdings' (TSE:9475) Earnings Quality

Soft earnings didn't appear to concern Shobunsha Holdings, Inc.'s (TSE:9475) shareholders over the last week. We did some digging, and we believe the earnings are stronger than they seem.

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The Impact Of Unusual Items On Profit

Importantly, our data indicates that Shobunsha Holdings' profit was reduced by JP¥61m, 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. Assuming those unusual expenses don't come up again, we'd therefore expect Shobunsha Holdings to produce a higher profit next year, all else being equal.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Shobunsha Holdings.

Our Take On Shobunsha Holdings' Profit Performance

Unusual items (expenses) detracted from Shobunsha Holdings' earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Shobunsha Holdings' statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in the last twelve months. 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 Shobunsha Holdings at this point in time. Case in point: We've spotted 2 warning signs for Shobunsha Holdings you should be aware of.

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