Why KG Chemical's (KRX:001390) Shaky Earnings Are Just The Beginning Of Its Problems

The subdued market reaction suggests that KG Chemical Corporation's (KRX:001390) recent earnings didn't contain any surprises. However, we believe that investors should be aware of some underlying factors which may be of concern.

Check out our latest analysis for KG Chemical

The Impact Of Unusual Items On Profit

For anyone who wants to understand KG Chemical's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₩52b 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. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. If KG Chemical doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

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

Our Take On KG Chemical's Profit Performance

Arguably, KG Chemical's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that KG Chemical's true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased 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. If you want to do dive deeper into KG Chemical, you'd also look into what risks it is currently facing. While conducting our analysis, we found that KG Chemical has 3 warning signs and it would be unwise to ignore them.

Today we've zoomed in on a single data point to better understand the nature of KG Chemical'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 with high insider ownership.

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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.