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Shareholders appeared unconcerned with Simulations Plus, Inc.'s (NASDAQ:SLP) lackluster earnings report last week. We did some digging, and we believe the earnings are stronger than they seem.
View our latest analysis for Simulations Plus
How Do Unusual Items Influence Profit?
For anyone who wants to understand Simulations Plus' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by US$1.2m 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, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Simulations Plus to produce a higher profit next year, all else being equal.
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 Simulations Plus' Profit Performance
Unusual items (expenses) detracted from Simulations Plus' earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Simulations Plus' statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in the last twelve months. 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. So while earnings quality is important, it's equally important to consider the risks facing Simulations Plus at this point in time. In terms of investment risks, we've identified 1 warning sign with Simulations Plus, and understanding this should be part of your investment process.
Today we've zoomed in on a single data point to better understand the nature of Simulations Plus' 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.