Why Daehan Flour MillsLtd's (KRX:001130) Shaky Earnings Are Just The Beginning Of Its Problems

A lackluster earnings announcement from Daehan Flour Mills Co.,Ltd (KRX:001130) last week didn't sink the stock price. However, we believe that investors should be aware of some underlying factors which may be of concern.

Our free stock report includes 2 warning signs investors should be aware of before investing in Daehan Flour MillsLtd. Read for free now.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Daehan Flour MillsLtd's profit received a boost of ₩7.0b in unusual items, over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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. If Daehan Flour MillsLtd doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

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

Our Take On Daehan Flour MillsLtd's Profit Performance

Arguably, Daehan Flour MillsLtd's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Daehan Flour MillsLtd's true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased in the last year. 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 if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. While conducting our analysis, we found that Daehan Flour MillsLtd has 2 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 Daehan Flour MillsLtd'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 with high insider ownership.

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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.