Are Seoul Electronics & Telecom's (KOSDAQ:027040) Statutory Earnings A Good Guide To Its Underlying Profitability?

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. 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 Seoul Electronics & Telecom's (KOSDAQ:027040) statutory profits are a good guide to its underlying earnings.

We like the fact that Seoul Electronics & Telecom made a profit of ₩3.33b on its revenue of ₩59.2b, in the last year. The chart below shows that while revenue has fallen over the last three years, the company has moved from unprofitable to profitable.

Check out our latest analysis for Seoul Electronics & Telecom

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 Seoul Electronics & Telecom'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 Seoul Electronics & Telecom.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Seoul Electronics & Telecom's profit received a boost of ₩246m in unusual items, over the last year. 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. Which is hardly surprising, given the name. If Seoul Electronics & Telecom 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 Seoul Electronics & Telecom's Profit Performance

We'd posit that Seoul Electronics & Telecom's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Seoul Electronics & Telecom's true underlying earnings power is actually less than its statutory profit. 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 while earnings quality is important, it's equally important to consider the risks facing Seoul Electronics & Telecom at this point in time. Case in point: We've spotted 2 warning signs for Seoul Electronics & Telecom you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Seoul Electronics & Telecom'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.

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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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