Here's Why We Don't Think KOREA CEMENT's (KOSDAQ:198440) Statutory Earnings Reflect Its Underlying 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 KOREA CEMENT's (KOSDAQ:198440) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months KOREA CEMENT made a profit of ₩2.82b on revenue of ₩68.3b. The chart below shows that both revenue and profit have declined over the last three years.

See our latest analysis for KOREA CEMENT

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 KOREA CEMENT's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of KOREA CEMENT.

The Impact Of Unusual Items On Profit

For anyone who wants to understand KOREA CEMENT's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₩2.4b 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'. KOREA CEMENT 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 KOREA CEMENT's Profit Performance

As we discussed above, we think the significant positive unusual item makes KOREA CEMENT'searnings a poor guide to its underlying profitability. As a result, we think it may well be the case that KOREA CEMENT's underlying earnings power is lower than its statutory profit. The good news is that, its earnings per share increased by 56% in the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. To help with this, we've discovered 2 warning signs (1 makes us a bit uncomfortable!) that you ought to be aware of before buying any shares in KOREA CEMENT.

Today we've zoomed in on a single data point to better understand the nature of KOREA CEMENT'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. 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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