We Like SewonLtd's (KOSDAQ:234100) Earnings For More Than Just Statutory Profit

The market seemed underwhelmed by last week's earnings announcement from Sewon Co.,Ltd (KOSDAQ:234100) despite the healthy numbers. We did some analysis to find out why and believe that investors might be missing some encouraging factors contained in the earnings.

Check out our latest analysis for SewonLtd

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, SewonLtd increased the number of shares on issue by 11% over the last twelve months by issuing new shares. That means its earnings are split among a greater number of shares. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. You can see a chart of SewonLtd's EPS by clicking here.

How Is Dilution Impacting SewonLtd's Earnings Per Share (EPS)?

Unfortunately, SewonLtd's profit is down 47% per year over three years. On the bright side, in the last twelve months it grew profit by 133%. On the other hand, earnings per share are only up 77% over the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, earnings per share growth should beget share price growth. So SewonLtd shareholders will want to see that EPS figure continue to increase. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

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

The Impact Of Unusual Items On Profit

Alongside that dilution, it's also important to note that SewonLtd's profit suffered from unusual items, which reduced profit by ₩1.6b in the last twelve months. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. If SewonLtd doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On SewonLtd's Profit Performance

SewonLtd suffered from unusual items which depressed its profit in its last report; if that is not repeated then profit should be higher, all else being equal. But unfortunately the dilution means that shareholders now own a smaller proportion of the company (assuming they maintained the same number of shares). That will weigh on earnings per share, even if it is not reflected in net income. Based on these factors, it's hard to tell if SewonLtd's profits are a reasonable reflection of its underlying profitability. If you want to do dive deeper into SewonLtd, you'd also look into what risks it is currently facing. For example - SewonLtd has 2 warning signs we think you should be aware of.

In this article we've looked at a number of factors that can impair the utility of profit numbers, as a guide to a business. 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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.