Additional Considerations Required While Assessing Sakurajima Futo Kaisha's (TSE:9353) Strong Earnings

Despite announcing strong earnings, Sakurajima Futo Kaisha, Ltd.'s (TSE:9353) stock was sluggish. We did some digging and found some worrying underlying problems.

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The Impact Of Unusual Items On Profit

Importantly, our data indicates that Sakurajima Futo Kaisha's profit received a boost of JP¥51m in unusual items, over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. If Sakurajima Futo Kaisha doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Sakurajima Futo Kaisha.

Our Take On Sakurajima Futo Kaisha's Profit Performance

Arguably, Sakurajima Futo Kaisha's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Sakurajima Futo Kaisha's true underlying earnings power is actually less than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate 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 Sakurajima Futo Kaisha at this point in time. For instance, we've identified 2 warning signs for Sakurajima Futo Kaisha (1 shouldn't be ignored) you should be familiar with.

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