We Think That There Are More Issues For Daewon Kang Up (KRX:000430) Than Just Sluggish Earnings

The market wasn't impressed with the soft earnings from Daewon Kang Up Co., Ltd. (KRX:000430) recently. We did some analysis, and found that there are some reasons to be cautious about the headline numbers.

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How Do Unusual Items Influence Profit?

Importantly, our data indicates that Daewon Kang Up's profit received a boost of ₩5.6b in unusual items, over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And, after all, that's exactly what the accounting terminology implies. 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).

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

Our Take On Daewon Kang Up's Profit Performance

Arguably, Daewon Kang Up's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Daewon Kang Up's statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. You'd be interested to know, that we found 3 warning signs for Daewon Kang Up and you'll want to know about these.

Today we've zoomed in on a single data point to better understand the nature of Daewon Kang Up'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 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.