We Think Shochiku's (TSE:9601) Profit Is Only A Baseline For What They Can Achieve

The subdued stock price reaction suggests that Shochiku Co., Ltd.'s (TSE:9601) strong earnings didn't offer any surprises. Our analysis suggests that investors might be missing some promising details.

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How Do Unusual Items Influence Profit?

For anyone who wants to understand Shochiku's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by JP¥667m 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. Assuming those unusual expenses don't come up again, we'd therefore expect Shochiku 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 Shochiku's Profit Performance

Unusual items (expenses) detracted from Shochiku's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Shochiku's statutory profit actually understates its earnings potential! And it's also positive that the company showed enough improvement to book a profit this year, after losing money last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you want to do dive deeper into Shochiku, you'd also look into what risks it is currently facing. To help with this, we've discovered 3 warning signs (2 make us uncomfortable!) that you ought to be aware of before buying any shares in Shochiku.

Today we've zoomed in on a single data point to better understand the nature of Shochiku's 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. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.

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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.