Should You Use FOODWELL's (KOSDAQ:005670) Statutory Earnings To Analyse It?

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. 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. In this article, we'll look at how useful this year's statutory profit is, when analysing FOODWELL (KOSDAQ:005670).

It's good to see that over the last twelve months FOODWELL made a profit of ₩2.47b on revenue of ₩140.7b. The chart below shows how it has grown revenue over the last three years, but that profit has declined.

View our latest analysis for FOODWELL

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 FOODWELL's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of FOODWELL.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that FOODWELL's profit was reduced by ₩1.7b, due to unusual items, over the last year. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. 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. If FOODWELL doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On FOODWELL's Profit Performance

Because unusual items detracted from FOODWELL's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that FOODWELL's statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back 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. If you'd like to know more about FOODWELL as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that FOODWELL has 4 warning signs and it would be unwise to ignore them.

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