Are Kwang Myung ElectricLtd's (KRX:017040) Statutory Earnings A Good Reflection Of Its Earnings Potential?

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. Today we'll focus on whether this year's statutory profits are a good guide to understanding Kwang Myung ElectricLtd (KRX:017040).

We like the fact that Kwang Myung ElectricLtd made a profit of ₩6.39b on its revenue of ₩126.4b, in the last year. The good news is that the company managed to grow its revenue over the last three years, and also move from loss-making to profitable.

View our latest analysis for Kwang Myung ElectricLtd

Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. This article will discuss how unusual items have impacted Kwang Myung ElectricLtd'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 Kwang Myung ElectricLtd.

The Impact Of Unusual Items On Profit

To properly understand Kwang Myung ElectricLtd's profit results, we need to consider the ₩736m gain attributed to 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 analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. If Kwang Myung ElectricLtd 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 Kwang Myung ElectricLtd's Profit Performance

Arguably, Kwang Myung ElectricLtd's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Kwang Myung ElectricLtd's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 35% EPS growth 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. If you'd like to know more about Kwang Myung ElectricLtd as a business, it's important to be aware of any risks it's facing. At Simply Wall St, we found 1 warning sign for Kwang Myung ElectricLtd and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Kwang Myung ElectricLtd'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. 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 that insiders are buying to be useful.

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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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