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.

See our latest analysis for KD Chem

The Impact Of Unusual Items On Profit

For anyone who wants to understand KD Chem's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by ₩781m 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. 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! Unfortunately, though, its earnings per share actually fell back over 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. So while earnings quality is important, it's equally important to consider the risks facing KD Chem at this point in time. Be aware that KD Chem is showing 3 warning signs in our investment analysis and 1 of those is significant...

Today we've zoomed in on a single data point to better understand the nature of KD Chem'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 with significant insider holdings to be useful.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.