Statistically speaking it is less risky to invest in profitable companies than in unprofitable ones. 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. This article will consider whether Dongsin Engineering & Construction‘s (KOSDAQ:025950) statutory profits are a good guide to its underlying earnings.
It’s good to see that over the last twelve months Dongsin Engineering & Construction made a profit of ₩2.04b on revenue of ₩26.7b. The chart below shows that both revenue and profit have declined over the last three years.
Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. This article will discuss how unusual items have impacted Dongsin Engineering & Construction’s most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Dongsin Engineering & Construction.
How Do Unusual Items Influence Profit?
To properly understand Dongsin Engineering & Construction’s profit results, we need to consider the ₩1.7b gain attributed to 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. 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’. We can see that Dongsin Engineering & Construction’s positive unusual items were quite significant relative to its profit in the year to September 2019. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.
Our Take On Dongsin Engineering & Construction’s Profit Performance
As we discussed above, we think the significant positive unusual item makes Dongsin Engineering & Construction’s earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Dongsin Engineering & Construction’s underlying earnings power is lower than its statutory profit. In further bad news, its earnings per share decreased in the last year. 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. Just as investors must consider earnings, it is also important to take into account the strength of a company’s balance sheet. You can seeour latest analysis on Dongsin Engineering & Construction’s balance sheet health here.
This note has only looked at a single factor that sheds light on the nature of Dongsin Engineering & Construction’s profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.