We Think Sakurajima Futo Kaisha's (TSE:9353) Healthy Earnings Might Be Conservative

Despite posting healthy earnings, Sakurajima Futo Kaisha, Ltd.'s (TSE:9353 ) stock has been quite weak. We have done some analysis, and found some encouraging factors that we believe the shareholders should consider.

View our latest analysis for Sakurajima Futo Kaisha

How Do Unusual Items Influence Profit?

For anyone who wants to understand Sakurajima Futo Kaisha's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by JP¥33m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. If Sakurajima Futo Kaisha doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming 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

Unusual items (expenses) detracted from Sakurajima Futo Kaisha's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Sakurajima Futo Kaisha's statutory profit actually understates its earnings potential! And the EPS is up 11% annually, over the last three years. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. So while earnings quality is important, it's equally important to consider the risks facing Sakurajima Futo Kaisha at this point in time. Case in point: We've spotted 3 warning signs for Sakurajima Futo Kaisha you should be mindful of and 1 of these bad boys can't be ignored.

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. 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.