Here's Why We Don't Think Yoosung Enterprise's (KRX:002920) Statutory Earnings Reflect Its Underlying Earnings Potential

Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether Yoosung Enterprise's (KRX:002920) statutory profits are a good guide to its underlying earnings.

We like the fact that Yoosung Enterprise made a profit of ₩5.80b on its revenue of ₩233.8b, in the last year. The chart below shows that both revenue and profit have declined over the last three years.

Check out our latest analysis for Yoosung Enterprise

Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. This article will focus on the impact unusual items have had on Yoosung Enterprise's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Yoosung Enterprise.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Yoosung Enterprise's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₩4.9b worth of unusual items. 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 analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. Yoosung Enterprise had a rather significant contribution from unusual items relative to its profit to September 2020. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On Yoosung Enterprise's Profit Performance

As we discussed above, we think the significant positive unusual item makes Yoosung Enterprise'searnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Yoosung Enterprise's underlying earnings power is lower than its statutory profit. Sadly, its EPS was down over the last twelve months. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you want to do dive deeper into Yoosung Enterprise, you'd also look into what risks it is currently facing. At Simply Wall St, we found 3 warning signs for Yoosung Enterprise and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Yoosung Enterprise's profit. 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. 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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