Kbi Dongkook Ind.Co.Ltd's (KRX:001620) Solid Profits Have Weak Fundamentals

Despite posting some strong earnings, the market for Kbi Dongkook Ind.Co.,Ltd.'s (KRX:001620) stock hasn't moved much. Our analysis suggests that shareholders have noticed something concerning in the numbers.

Check out our latest analysis for Kbi Dongkook Ind.Co.Ltd

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Kbi Dongkook Ind.Co.Ltd increased the number of shares on issue by 11% over the last twelve months by issuing new shares. As a result, its net income is now split between a greater number of shares. Per share metrics like EPS help us understand how much actual shareholders are benefitting from the company's profits, while the net income level gives us a better view of the company's absolute size. Check out Kbi Dongkook Ind.Co.Ltd's historical EPS growth by clicking on this link.

How Is Dilution Impacting Kbi Dongkook Ind.Co.Ltd's Earnings Per Share (EPS)?

Three years ago, Kbi Dongkook Ind.Co.Ltd lost money. On the bright side, in the last twelve months it grew profit by 82%. But EPS was less impressive, up only 54% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Kbi Dongkook Ind.Co.Ltd 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 that reason, you could say that EPS is more important that net income in the long run, assuming the goal is to assess whether a company's share price might grow.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Kbi Dongkook Ind.Co.Ltd.

The Impact Of Unusual Items On Profit

Alongside that dilution, it's also important to note that Kbi Dongkook Ind.Co.Ltd's profit was boosted by unusual items worth ₩608m in the last twelve months. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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. Which is hardly surprising, given the name. If Kbi Dongkook Ind.Co.Ltd doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On Kbi Dongkook Ind.Co.Ltd's Profit Performance

To sum it all up, Kbi Dongkook Ind.Co.Ltd got a nice boost to profit from unusual items; without that, its statutory results would have looked worse. On top of that, the dilution means that its earnings per share performance is worse than its profit performance. For the reasons mentioned above, we think that a perfunctory glance at Kbi Dongkook Ind.Co.Ltd's statutory profits might make it look better than it really is on an underlying level. If you'd like to know more about Kbi Dongkook Ind.Co.Ltd as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 3 warning signs for Kbi Dongkook Ind.Co.Ltd (of which 1 is concerning!) you should know about.

In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. 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.