Here's Why We Don't Think Pyeong Hwa Automotive's (KOSDAQ:043370) Statutory Earnings Reflect Its Underlying Earnings Potential

Broadly speaking, profitable businesses are less risky than unprofitable ones. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. This article will consider whether Pyeong Hwa Automotive's (KOSDAQ:043370) statutory profits are a good guide to its underlying earnings.

While Pyeong Hwa Automotive was able to generate revenue of ₩958.4b in the last twelve months, we think its profit result of ₩12.2b was more important. Below, you can see that both its revenue and its profit have fallen over the last three years.

View our latest analysis for Pyeong Hwa Automotive

Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. This article will focus on the impact unusual items have had on Pyeong Hwa Automotive's statutory earnings. 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.

The Impact Of Unusual Items On Profit

To properly understand Pyeong Hwa Automotive's profit results, we need to consider the ₩4.8b gain attributed to unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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 that's as you'd expect, given these boosts are described as 'unusual'. We can see that Pyeong Hwa Automotive's positive unusual items were quite significant relative to its profit in the year to June 2020. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On Pyeong Hwa Automotive's Profit Performance

As we discussed above, we think the significant positive unusual item makes Pyeong Hwa Automotive'searnings a poor guide to its underlying profitability. For this reason, we think that Pyeong Hwa Automotive's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. Sadly, its EPS was down over the last twelve months. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. You'd be interested to know, that we found 2 warning signs for Pyeong Hwa Automotive and you'll want to know about these bad boys.

Today we've zoomed in on a single data point to better understand the nature of Pyeong Hwa Automotive'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 that insiders are buying to be useful.

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This article by Simply Wall St is general in nature. 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.
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