Shionogi's (TSE:4507) Soft Earnings Don't Show The Whole Picture

Soft earnings didn't appear to concern Shionogi & Co., Ltd.'s (TSE:4507) shareholders over the last week. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

View our latest analysis for Shionogi

The Impact Of Unusual Items On Profit

For anyone who wants to understand Shionogi's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by JP¥20b due to unusual items. 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, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Shionogi 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 Shionogi's Profit Performance

Unusual items (expenses) detracted from Shionogi's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Shionogi's statutory profit actually understates its earnings potential! And the EPS is up 53% annually, over the last three years. 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. So while earnings quality is important, it's equally important to consider the risks facing Shionogi at this point in time. Every company has risks, and we've spotted 1 warning sign for Shionogi you should know about.

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