We Wouldn't Rely On Samkee Automotive's (KOSDAQ:122350) Statutory Earnings As A Guide

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. Today we'll focus on whether this year's statutory profits are a good guide to understanding Samkee Automotive (KOSDAQ:122350).

While Samkee Automotive was able to generate revenue of ₩328.2b in the last twelve months, we think its profit result of ₩3.88b was more important.

View our latest analysis for Samkee Automotive

Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. This article will focus on the impact unusual items have had on Samkee Automotive's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Samkee Automotive.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Samkee Automotive's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₩1.4b worth of unusual items. 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. Which is hardly surprising, given the name. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Our Take On Samkee Automotive's Profit Performance

Arguably, Samkee Automotive's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Samkee Automotive's true underlying earnings power is actually less than its statutory profit. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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 Samkee Automotive at this point in time. When we did our research, we found 4 warning signs for Samkee Automotive (2 are significant!) that we believe deserve your full attention.

This note has only looked at a single factor that sheds light on the nature of Samkee Automotive's profit. But there are plenty of other ways to inform your opinion of a company. 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. 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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