We Wouldn't Rely On Daewon's (KOSDAQ:007680) Statutory Earnings As A Guide

Broadly speaking, profitable businesses are less risky than unprofitable ones. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. This article will consider whether Daewon's (KOSDAQ:007680) statutory profits are a good guide to its underlying earnings.

While Daewon was able to generate revenue of ₩227.6b in the last twelve months, we think its profit result of ₩3.46b was more important. Below, you can see that both its revenue and its profit have fallen over the last three years.

See our latest analysis for Daewon

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. This article will focus on the impact unusual items have had on Daewon's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Daewon.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Daewon's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₩2.9b 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 analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. We can see that Daewon's positive unusual items were quite significant relative to its profit in the year to September 2020. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On Daewon's Profit Performance

As we discussed above, we think the significant positive unusual item makes Daewon'searnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Daewon's underlying earnings power is lower than its statutory profit. In further bad news, its earnings per share decreased in the last year. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. While conducting our analysis, we found that Daewon has 5 warning signs and it would be unwise to ignore them.

This note has only looked at a single factor that sheds light on the nature of Daewon'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 that insiders are buying.

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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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