Investors Shouldn't Be Too Comfortable With Taihan Cable & Solution's (KRX:001440) Earnings

Taihan Cable & Solution Co., Ltd. (KRX:001440) announced strong profits, but the stock was stagnant. Our analysis suggests that shareholders have noticed something concerning in the numbers.

Check out our latest analysis for Taihan Cable & Solution

The Impact Of Unusual Items On Profit

For anyone who wants to understand Taihan Cable & Solution's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₩9.0b 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 that's as you'd expect, given these boosts are described as 'unusual'. If Taihan Cable & Solution doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Taihan Cable & Solution.

An Unusual Tax Situation

Just as we noted the unusual items, we must inform you that Taihan Cable & Solution received a tax benefit which contributed ₩6.4b to the bottom line. This is of course a bit out of the ordinary, given it is more common for companies to be paying tax than receiving tax benefits! We're sure the company was pleased with its tax benefit. However, the devil in the detail is that these kind of benefits only impact in the year they are booked, and are often one-off in nature. In the likely event the tax benefit is not repeated, we'd expect to see its statutory profit levels drop, at least in the absence of strong growth.

Our Take On Taihan Cable & Solution's Profit Performance

In its last report Taihan Cable & Solution received a tax benefit which might make its profit look better than it really is on a underlying level. And on top of that, it also saw an unusual item boost its profit, suggesting that next year might see a lower profit number, if these events are not repeated. For the reasons mentioned above, we think that a perfunctory glance at Taihan Cable & Solution's statutory profits might make it look better than it really is on an underlying level. While earnings are important, another area to consider is the balance sheet. We've done some analysis and you can see our take on Taihan Cable & Solution's balance sheet by clicking here.

Our examination of Taihan Cable & Solution has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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.

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.