We Think That There Are Some Issues For Korea Industrial (KRX:002140) Beyond Its Promising Earnings

Korea Industrial Co., Ltd.'s (KRX:002140) healthy profit numbers didn't contain any surprises for investors. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.

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The Impact Of Unusual Items On Profit

Importantly, our data indicates that Korea Industrial's profit received a boost of ₩1.5b in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

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

Our Take On Korea Industrial's Profit Performance

Arguably, Korea Industrial's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Korea Industrial's statutory profits are better than its underlying earnings power. The good news is that, its earnings per share increased by 77% 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 while earnings quality is important, it's equally important to consider the risks facing Korea Industrial at this point in time. For instance, we've identified 4 warning signs for Korea Industrial (2 are significant) you should be familiar with.

Today we've zoomed in on a single data point to better understand the nature of Korea Industrial's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. 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.