Does HS Valve's (KOSDAQ:039610) Statutory Profit Adequately Reflect Its Underlying Profit?

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. Today we'll focus on whether this year's statutory profits are a good guide to understanding HS Valve (KOSDAQ:039610).

We like the fact that HS Valve made a profit of ₩1.52b on its revenue of ₩62.9b, in the last year. The chart below shows how it has grown revenue over the last three years, but that profit has declined.

See our latest analysis for HS Valve

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 HS Valve's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of HS Valve.

The Impact Of Unusual Items On Profit

For anyone who wants to understand HS Valve's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₩229m 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, after all, that's exactly what the accounting terminology implies. If HS Valve 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 HS Valve's Profit Performance

Arguably, HS Valve's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that HS Valve's statutory profits are better than its underlying earnings power. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. You'd be interested to know, that we found 2 warning signs for HS Valve and you'll want to know about these.

Today we've zoomed in on a single data point to better understand the nature of HS Valve'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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