We're Not So Sure You Should Rely on Hanchang Ind.Co.Ltd's (KOSDAQ:079170) Statutory Earnings

Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether Hanchang Ind.Co.Ltd's (KOSDAQ:079170) statutory profits are a good guide to its underlying earnings.

We like the fact that Hanchang Ind.Co.Ltd made a profit of ₩1.82b on its revenue of ₩57.6b, in the last year. As you can see below, its profit has actually declined over the last three years, even though its revenue was flat.

View our latest analysis for Hanchang Ind.Co.Ltd

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. This article will discuss how unusual items have impacted Hanchang Ind.Co.Ltd's most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Hanchang Ind.Co.Ltd.

How Do Unusual Items Influence Profit?

To properly understand Hanchang Ind.Co.Ltd's profit results, we need to consider the ₩994m gain attributed to unusual items. 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 that's as you'd expect, given these boosts are described as 'unusual'. Hanchang Ind.Co.Ltd had a rather significant contribution from unusual items relative to its profit to September 2020. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On Hanchang Ind.Co.Ltd's Profit Performance

As previously mentioned, Hanchang Ind.Co.Ltd's large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. As a result, we think it may well be the case that Hanchang Ind.Co.Ltd's underlying earnings power is lower than its statutory profit. The good news is that, its earnings per share increased by 41% in the last year. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. 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. At Simply Wall St, we found 3 warning signs for Hanchang Ind.Co.Ltd and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of Hanchang Ind.Co.Ltd'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. 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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