JEOL's (TSE:6951) Conservative Accounting Might Explain Soft Earnings

The most recent earnings report from JEOL Ltd. (TSE:6951) was disappointing for shareholders. Despite the soft profit numbers, our analysis has optimistic about the overall quality of the income statement.

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How Do Unusual Items Influence Profit?

For anyone who wants to understand JEOL's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by JP¥8.5b due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. If JEOL doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

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 JEOL's Profit Performance

Unusual items (expenses) detracted from JEOL's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that JEOL's statutory profit actually understates its earnings potential! And the EPS is up 11% 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. If you'd like to know more about JEOL as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that JEOL has 1 warning sign and it would be unwise to ignore it.

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