Are Meta Biomed's (KOSDAQ:059210) Statutory Earnings A Good Reflection Of Its Earnings Potential?

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. 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 Meta Biomed's (KOSDAQ:059210) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months Meta Biomed made a profit of ₩2.03b on revenue of ₩46.8b.

Check out our latest analysis for Meta Biomed

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. As a reuslt, we think it's important to consider how unusual items and the recent tax benefit have influenced Meta Biomed's statutory profit. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Meta Biomed.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Meta Biomed's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by ₩3.1b due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. In the twelve months to September 2020, Meta Biomed had a big unusual items expense. As a result, we can surmise that the unusual items made its statutory profit significantly weaker than it would otherwise be.

An Unusual Tax Situation

Having already discussed the impact of the unusual items, we should also note that Meta Biomed received a tax benefit of ₩651m. It's always a bit noteworthy when a company is paid by the tax man, rather than paying the tax man. We're sure the company was pleased with its tax benefit. However, our data indicates that tax benefits can temporarily boost statutory profit in the year it is booked, but subsequently profit may fall back. Assuming the tax benefit is not repeated every year, we could see its profitability drop noticeably, all else being equal. 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 Meta Biomed's Profit Performance

In its last report Meta Biomed received a tax benefit which might make its profit look better than it really is on a underlying level. Having said that, it also had a unusual item reducing its profit. Based on these factors, we think that Meta Biomed's profits are a reasonably conservative guide to its underlying profitability. So while earnings quality is important, it's equally important to consider the risks facing Meta Biomed at this point in time. To help with this, we've discovered 3 warning signs (1 is potentially serious!) that you ought to be aware of before buying any shares in Meta Biomed.

Our examination of Meta Biomed has focussed on certain factors that can make its earnings look better than they are. 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. 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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