Does Lotte Confectionery's (KRX:280360) Statutory Profit Adequately Reflect Its Underlying Profit?

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. This article will consider whether Lotte Confectionery's (KRX:280360) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months Lotte Confectionery made a profit of ₩33.8b on revenue of ₩2.07t.

Check out our latest analysis for Lotte Confectionery

Not all profits are equal, and we can learn more about the nature of a company's past profitability by diving deeper into the financial statements. This article will focus on the impact unusual items have had on Lotte Confectionery's statutory earnings. That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Lotte Confectionery's profit was reduced by ₩25b, 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. 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. Assuming those unusual expenses don't come up again, we'd therefore expect Lotte Confectionery to produce a higher profit next year, all else being equal.

Our Take On Lotte Confectionery's Profit Performance

Unusual items (expenses) detracted from Lotte Confectionery's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Lotte Confectionery's statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over 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. If you want to do dive deeper into Lotte Confectionery, you'd also look into what risks it is currently facing. At Simply Wall St, we found 3 warning signs for Lotte Confectionery and we think they deserve your attention.

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