Are GRITEE's (KOSDAQ:204020) Statutory Earnings A Good Reflection Of Its Earnings Potential?

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether GRITEE's (KOSDAQ:204020) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months GRITEE made a profit of ₩2.17b on revenue of ₩127.0b. As you can see in the chart below, its profit has declined over the last three years, even though its revenue has increased.

See our latest analysis for GRITEE

Not all profits are equal, and we can learn more about the nature of a company's past profitability by diving deeper into the financial statements. This article will discuss how unusual items have impacted GRITEE'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 GRITEE.

How Do Unusual Items Influence Profit?

To properly understand GRITEE's profit results, we need to consider the ₩621m expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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 expenses don't come up again, we'd therefore expect GRITEE to produce a higher profit next year, all else being equal.

Our Take On GRITEE's Profit Performance

Unusual items (expenses) detracted from GRITEE's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that GRITEE's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at an extremely impressive rate over 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. So while earnings quality is important, it's equally important to consider the risks facing GRITEE at this point in time. Every company has risks, and we've spotted 3 warning signs for GRITEE (of which 1 is concerning!) you should know about.

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