We Don’t Think Kook Soon Dang.Co.Ltd's (KOSDAQ:043650) Earnings Should Make Shareholders Too Comfortable

Solid profit numbers didn't seem to be enough to please Kook Soon Dang.Co.,Ltd.'s (KOSDAQ:043650) shareholders. Our analysis has found some concerning factors which weaken the profit's foundation.

See our latest analysis for Kook Soon Dang.Co.Ltd

The Impact Of Unusual Items On Profit

To properly understand Kook Soon Dang.Co.Ltd's profit results, we need to consider the ₩2.8b gain attributed to 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. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. We can see that Kook Soon Dang.Co.Ltd's positive unusual items were quite significant relative to its profit in the year to September 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger 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 Kook Soon Dang.Co.Ltd.

An Unusual Tax Situation

Having already discussed the impact of the unusual items, we should also note that Kook Soon Dang.Co.Ltd received a tax benefit of ₩863m. This is meaningful because companies usually pay tax rather than receive tax benefits. We're sure the company was pleased with its tax benefit. And since it previously lost money, it may well simply indicate the realisation of past tax losses. However, the devil in the detail is that these kind of benefits only impact in the year they are booked, and are often one-off in nature. In the likely event the tax benefit is not repeated, we'd expect to see its statutory profit levels drop, at least in the absence of strong growth. While we think it's good that the company has booked a tax benefit, it does mean that there's every chance the statutory profit will come in a lot higher than it would be if the income was adjusted for one-off factors.

Our Take On Kook Soon Dang.Co.Ltd's Profit Performance

In the last year Kook Soon Dang.Co.Ltd received a tax benefit, which boosted its profit in a way that might not be much more sustainable than turning prime farmland into gas fields. Furthermore, it also benefitted from a positive unusual item, which boosted the profit result even higher. For all the reasons mentioned above, we think that, at a glance, Kook Soon Dang.Co.Ltd's statutory profits could be considered to be low quality, because they are likely to give investors an overly positive impression of the company. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. At Simply Wall St, we found 3 warning signs for Kook Soon Dang.Co.Ltd and we think they deserve your attention.

Our examination of Kook Soon Dang.Co.Ltd has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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.