THINKWARE's (KOSDAQ:084730) Conservative Accounting Might Explain Soft Earnings

The market for THINKWARE Corporation's (KOSDAQ:084730) shares didn't move much after it posted weak earnings recently. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that THINKWARE's profit was reduced by ₩14b, due to unusual items, over the last year. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. In the twelve months to December 2024, THINKWARE had a big unusual items expense. As a result, we can surmise that the unusual items made its statutory profit significantly weaker than it would otherwise be.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of THINKWARE.

Our Take On THINKWARE's Profit Performance

As we discussed above, we think the significant unusual expense will make THINKWARE's statutory profit lower than it would otherwise have been. Based on this observation, we consider it possible that THINKWARE's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at 51% per year over the last three years. 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. So while earnings quality is important, it's equally important to consider the risks facing THINKWARE at this point in time. For example - THINKWARE has 3 warning signs we think you should be aware of.

This note has only looked at a single factor that sheds light on the nature of THINKWARE'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 with significant insider holdings to be useful.

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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.