Hankook Furniture's (KOSDAQ:004590) Profits Appear To Have Quality Issues

Following the solid earnings report from Hankook Furniture Co., Ltd. (KOSDAQ:004590), the market responded by bidding up the stock price. However, we think that shareholders should be cautious as we found some worrying factors underlying the profit.

View our latest analysis for Hankook Furniture

How Do Unusual Items Influence Profit?

To properly understand Hankook Furniture's profit results, we need to consider the ₩1.8b gain attributed to 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 Hankook Furniture.

Our Take On Hankook Furniture's Profit Performance

Arguably, Hankook Furniture's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Hankook Furniture's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 6.8% per annum growth in EPS for the last three. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. At Simply Wall St, we found 1 warning sign for Hankook Furniture and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of Hankook Furniture'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.