Stock Analysis

Here's Why We Don't Think Dayou A-TechLtd's (KRX:002880) Statutory Earnings Reflect Its Underlying Earnings Potential

KOSE:A002880
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Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. 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. Today we'll focus on whether this year's statutory profits are a good guide to understanding Dayou A-TechLtd (KRX:002880).

While Dayou A-TechLtd was able to generate revenue of ₩1.43t in the last twelve months, we think its profit result of ₩14.9b was more important.

Check out our latest analysis for Dayou A-TechLtd

earnings-and-revenue-history
KOSE:A002880 Earnings and Revenue History January 19th 2021

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. This article will focus on the impact unusual items have had on Dayou A-TechLtd's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Dayou A-TechLtd.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Dayou A-TechLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₩12b worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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 that's as you'd expect, given these boosts are described as 'unusual'. If Dayou A-TechLtd 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 Dayou A-TechLtd's Profit Performance

We'd posit that Dayou A-TechLtd's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Dayou A-TechLtd's statutory profits are better than its underlying earnings power. On the bright side, the company showed enough improvement to book a profit this year, after losing money last year. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, we've discovered 3 warning signs that you should run your eye over to get a better picture of Dayou A-TechLtd.

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