Sun-Wa Technos' (TSE:8137) Problems Go Beyond Weak Profit

The subdued market reaction suggests that Sun-Wa Technos Corporation's (TSE:8137) recent earnings didn't contain any surprises. However, we believe that investors should be aware of some underlying factors which may be of concern.

See our latest analysis for Sun-Wa Technos

The Impact Of Unusual Items On Profit

For anyone who wants to understand Sun-Wa Technos' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from JP¥710m worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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 items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Sun-Wa Technos.

Our Take On Sun-Wa Technos' Profit Performance

Arguably, Sun-Wa Technos' statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Sun-Wa Technos' true underlying earnings power is actually less than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Sun-Wa Technos.

Today we've zoomed in on a single data point to better understand the nature of Sun-Wa Technos' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.