Should You Rely On Lion Chemtech's (KOSDAQ:171120) Earnings Growth?

Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. 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 Lion Chemtech (KOSDAQ:171120).

It's good to see that over the last twelve months Lion Chemtech made a profit of ₩12.9b on revenue of ₩142.0b. In the chart below, you can see that its profit and revenue have both grown over the last three years, although its revenue has slipped in the last twelve months.

See our latest analysis for Lion Chemtech

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 discuss how unusual items have impacted Lion Chemtech'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 Lion Chemtech.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Lion Chemtech's profit received a boost of ₩2.4b in unusual items, over the last year. 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 Lion Chemtech 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 Lion Chemtech's Profit Performance

Arguably, Lion Chemtech's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Lion Chemtech's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 28% EPS growth in the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Lion Chemtech.

Today we've zoomed in on a single data point to better understand the nature of Lion Chemtech'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. 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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