Korea Cast Iron Pipe Ind's (KRX:000970) Weak Earnings May Only Reveal A Part Of The Whole Picture

A lackluster earnings announcement from Korea Cast Iron Pipe Ind. Co., Ltd. (KRX:000970) last week didn't sink the stock price. However, we believe that investors should be aware of some underlying factors which may be of concern.

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The Impact Of Unusual Items On Profit

For anyone who wants to understand Korea Cast Iron Pipe Ind's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₩1.5b 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 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. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Korea Cast Iron Pipe Ind.

Our Take On Korea Cast Iron Pipe Ind's Profit Performance

Arguably, Korea Cast Iron Pipe Ind's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Korea Cast Iron Pipe Ind's true underlying earnings power is actually less 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. So while earnings quality is important, it's equally important to consider the risks facing Korea Cast Iron Pipe Ind at this point in time. Every company has risks, and we've spotted 1 warning sign for Korea Cast Iron Pipe Ind you should know about.

Today we've zoomed in on a single data point to better understand the nature of Korea Cast Iron Pipe Ind'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.

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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.