Should You Use Crown Confectionery's (KRX:264900) Statutory Earnings To Analyse It?

Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. This article will consider whether Crown Confectionery's (KRX:264900) statutory profits are a good guide to its underlying earnings.

We like the fact that Crown Confectionery made a profit of ₩19.5b on its revenue of ₩385.8b, in the last year.

Check out our latest analysis for Crown Confectionery

Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. This article will focus on the impact unusual items have had on Crown Confectionery's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Crown Confectionery.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Crown Confectionery's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₩2.1b worth of 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. And that's as you'd expect, given these boosts are described as 'unusual'. If Crown Confectionery doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On Crown Confectionery's Profit Performance

Arguably, Crown Confectionery's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Crown Confectionery's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 50% EPS growth 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Be aware that Crown Confectionery is showing 2 warning signs in our investment analysis and 1 of those is potentially serious...

This note has only looked at a single factor that sheds light on the nature of Crown Confectionery's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 that insiders are buying to be useful.

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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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