We're Not So Sure You Should Rely on Hankook Technology Group's (KRX:000240) Statutory Earnings

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. 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 Hankook Technology Group's (KRX:000240) statutory profits are a good guide to its underlying earnings.

While Hankook Technology Group was able to generate revenue of ₩801.1b in the last twelve months, we think its profit result of ₩111.5b was more important. The chart below shows that both revenue and profit have declined over the last three years.

View our latest analysis for Hankook Technology Group

Not all profits are equal, and we can learn more about the nature of a company's past profitability by diving deeper into the financial statements. Today, we'll look at how the recent spike in non-operating revenue has impacted Hankook Technology Group's most recent results. 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.

Operating Revenue Or Not?

At most companies, some revenue streams, such as government grants, are accounted for as non-operating revenue, while the core business is said to produce operating revenue. Where possible, we prefer rely on operating revenue to get a better understanding of how the business is functioning. Importantly, the non-operating revenue often comes without associated ongoing costs, so it can boost profit by letting it fall straight to the bottom line, making the operating business seem better than it really is. Notably, Hankook Technology Group had a significant increase in non-operating revenue over the last year. In fact, our data indicates that non-operating revenue increased from ₩864.5b to ₩801.1b. The high levels of non-operating are problematic because if (and when) they do not repeat, then overall revenue (and profitability) of the firm will fall. In order to better understand a company's profit result, it can sometimes help to consider whether the result would be very different without a sudden increase in non-operating revenue.

Our Take On Hankook Technology Group's Profit Performance

Since Hankook Technology Group saw a big increase in its non-operating revenue over the last twelve months, we'd be very cautious about relying too heavily on the statutory profit number, which would have benefitted from this potentially unsustainable change. As a result, we think it may well be the case that Hankook Technology Group's underlying earnings power is lower than its statutory profit. 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. If you want to do dive deeper into Hankook Technology Group, you'd also look into what risks it is currently facing. For example - Hankook Technology Group has 1 warning sign we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Hankook Technology Group'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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