Nam Hwa ConstructionLtd's (KOSDAQ:091590) Solid Earnings May Rest On Weak Foundations

Nam Hwa Construction Co.,Ltd's (KOSDAQ:091590) robust recent earnings didn't do much to move the stock. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Nam Hwa ConstructionLtd's profit received a boost of ₩6.2b in unusual items, over the last year. 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, after all, that's exactly what the accounting terminology implies. Nam Hwa ConstructionLtd had a rather significant contribution from unusual items relative to its profit to December 2024. 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 Nam Hwa ConstructionLtd.

Our Take On Nam Hwa ConstructionLtd's Profit Performance

As we discussed above, we think the significant positive unusual item makes Nam Hwa ConstructionLtd's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Nam Hwa ConstructionLtd's underlying earnings power is lower than its statutory profit. On the bright side, the company showed enough improvement to book a profit this year, after losing money 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. To that end, you should learn about the 4 warning signs we've spotted with Nam Hwa ConstructionLtd (including 1 which shouldn't be ignored).

Today we've zoomed in on a single data point to better understand the nature of Nam Hwa ConstructionLtd'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 with high insider ownership.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.