Daechang Forging's (KRX:015230) Sluggish Earnings Might Be Just The Beginning Of Its Problems

A lackluster earnings announcement from Daechang Forging Co., Ltd. (KRX:015230) last week didn't sink the stock price. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Daechang Forging's profit received a boost of ₩7.3b 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 that's as you'd expect, given these boosts are described as 'unusual'. If Daechang Forging 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 Daechang Forging.

Our Take On Daechang Forging's Profit Performance

Arguably, Daechang Forging's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Daechang Forging's true underlying earnings power is actually less than its statutory profit. Nonetheless, it's still worth noting that its earnings per share have grown at 28% over the last three years. 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. If you'd like to know more about Daechang Forging as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 1 warning sign with Daechang Forging, and understanding this should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Daechang Forging's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.