Earnings Troubles May Signal Larger Issues for Seoyon Topmetal (KOSDAQ:019770) Shareholders

Despite Seoyon Topmetal Co., Ltd.'s (KOSDAQ:019770) recent earnings report having lackluster headline numbers, the market responded positively. Sometimes, shareholders are willing to ignore soft numbers with the hope that they will improve, but our analysis suggests this is unlikely for Seoyon Topmetal.

View our latest analysis for Seoyon Topmetal

An Unusual Tax Situation

We can see that Seoyon Topmetal received a tax benefit of ₩793m. This is of course a bit out of the ordinary, given it is more common for companies to be paying tax than receiving tax benefits! We're sure the company was pleased with its tax benefit. However, the devil in the detail is that these kind of benefits only impact in the year they are booked, and are often one-off in nature. In the likely event the tax benefit is not repeated, we'd expect to see its statutory profit levels drop, at least in the absence of strong growth.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Seoyon Topmetal.

Our Take On Seoyon Topmetal's Profit Performance

Seoyon Topmetal reported that it received a tax benefit, rather than paid tax, in its last report. As a result we don't think its profit result, which includes that tax-boost, is a good guide to its sustainable profit levels. Therefore, it seems possible to us that Seoyon Topmetal's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 47% per annum growth in EPS for the last three. 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 Seoyon Topmetal at this point in time. For example - Seoyon Topmetal has 2 warning signs we think you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Seoyon Topmetal's 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.