Investors Can Find Comfort In KD Chem's (KOSDAQ:221980) Earnings Quality

Soft earnings didn't appear to concern KD Chem Co., Ltd.'s (KOSDAQ:221980) shareholders over the last week. We did some digging, and we believe the earnings are stronger than they seem.

Check out our latest analysis for KD Chem

How Do Unusual Items Influence Profit?

To properly understand KD Chem's profit results, we need to consider the ₩951m expense attributed 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. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. If KD Chem doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of KD Chem.

Our Take On KD Chem's Profit Performance

Because unusual items detracted from KD Chem's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think KD Chem's earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share have grown at 11% per year over the last three years. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. You'd be interested to know, that we found 2 warning signs for KD Chem and you'll want to know about them.

This note has only looked at a single factor that sheds light on the nature of KD Chem's profit. But there are plenty of other ways to inform your opinion of a company. 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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