Impressive Earnings May Not Tell The Whole Story For SIMPAC (KRX:009160)

SIMPAC Inc.'s (KRX:009160) stock was strong after they recently reported robust earnings. However, our analysis suggests that shareholders may be missing some factors that indicate the earnings result was not as good as it looked.

Check out our latest analysis for SIMPAC

How Do Unusual Items Influence Profit?

For anyone who wants to understand SIMPAC's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₩1.2b worth of unusual items. 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 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. 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 SIMPAC.

Our Take On SIMPAC's Profit Performance

Arguably, SIMPAC's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that SIMPAC's statutory profits are better than its underlying earnings power. The silver lining is that its EPS growth over the last year has been really wonderful, even if it's not a perfect measure. 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. If you want to do dive deeper into SIMPAC, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 2 warning signs for SIMPAC (of which 1 doesn't sit too well with us!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of SIMPAC'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. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.

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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.