Should You Use Taekwang Industrial's (KRX:003240) Statutory Earnings To Analyse It?

As a general rule, we think profitable companies are less risky than companies that lose money. That said, the current statutory profit is not always a good guide to a company's underlying profitability. In this article, we'll look at how useful this year's statutory profit is, when analysing Taekwang Industrial (KRX:003240).

It's good to see that over the last twelve months Taekwang Industrial made a profit of ₩160.7b on revenue of ₩2.50t. Even though its revenue is down over the last three years, its profit has actually increased, as you can see, below.

Check out our latest analysis for Taekwang Industrial

Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. This article will discuss how unusual items have impacted Taekwang Industrial'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 Taekwang Industrial.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Taekwang Industrial's profit was reduced by ₩33b, due to unusual items, over the last year. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Taekwang Industrial to produce a higher profit next year, all else being equal.

Our Take On Taekwang Industrial's Profit Performance

Unusual items (expenses) detracted from Taekwang Industrial's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Taekwang Industrial's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at 30% per year over the last three years. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Case in point: We've spotted 1 warning sign for Taekwang Industrial you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Taekwang Industrial'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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