Additional Considerations Required While Assessing Sanshin Electronics' (TSE:8150) Strong Earnings

Sanshin Electronics Co., Ltd.'s (TSE:8150) stock was strong after they recently reported robust earnings. However, we think that shareholders may be missing some concerning details in the numbers.

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The Impact Of Unusual Items On Profit

For anyone who wants to understand Sanshin Electronics' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from JP¥808m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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 Sanshin Electronics.

Our Take On Sanshin Electronics' Profit Performance

Arguably, Sanshin Electronics' statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Sanshin Electronics' statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 20% 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. While conducting our analysis, we found that Sanshin Electronics has 1 warning sign and it would be unwise to ignore this.

This note has only looked at a single factor that sheds light on the nature of Sanshin Electronics' 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.