Saeron Automotive's (KRX:075180) Earnings Are Of Questionable Quality

Saeron Automotive Corporation's (KRX:075180) robust earnings report didn't manage to move the market for its stock. We did some digging, and we found some concerning factors in the details.

Check out our latest analysis for Saeron Automotive

The Impact Of Unusual Items On Profit

For anyone who wants to understand Saeron Automotive's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₩6.3b worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And that's as you'd expect, given these boosts are described as 'unusual'. We can see that Saeron Automotive's positive unusual items were quite significant relative to its profit in the year to December 2023. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Saeron Automotive.

Our Take On Saeron Automotive's Profit Performance

As we discussed above, we think the significant positive unusual item makes Saeron Automotive's earnings a poor guide to its underlying profitability. For this reason, we think that Saeron Automotive's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. On the bright side, the company showed enough improvement to book a profit this year, after losing money last year. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example, Saeron Automotive has 4 warning signs (and 2 which are a bit concerning) we think you should know about.

This note has only looked at a single factor that sheds light on the nature of Saeron Automotive'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. 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.