Should You Use THINKWARE's (KOSDAQ:084730) Statutory Earnings To Analyse It?

As a general rule, we think profitable companies are less risky than companies that lose money. 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. In this article, we'll look at how useful this year's statutory profit is, when analysing THINKWARE (KOSDAQ:084730).

We like the fact that THINKWARE made a profit of ₩5.70b on its revenue of ₩189.0b, in the last year. In the last few years both its revenue and its profit have fallen, as you can see in the chart below.

See our latest analysis for THINKWARE

Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. This article will focus on the impact unusual items have had on THINKWARE's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of THINKWARE.

How Do Unusual Items Influence Profit?

For anyone who wants to understand THINKWARE's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₩1.3b 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 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'. If THINKWARE 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 THINKWARE's Profit Performance

Arguably, THINKWARE's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that THINKWARE's true underlying earnings power is actually less than its statutory profit. The silver lining is that its EPS growth over the last year has been really wonderful, even if it's not a perfect measure. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you'd like to know more about THINKWARE as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 2 warning signs for THINKWARE you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of THINKWARE'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. 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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