LOTTE Fine Chemical's (KRX:004000) Soft Earnings Are Actually Better Than They Appear

The most recent earnings report from LOTTE Fine Chemical Co., Ltd. (KRX:004000) was disappointing for shareholders. While the headline numbers were soft, we believe that investors might be missing some encouraging factors.

See our latest analysis for LOTTE Fine Chemical

How Do Unusual Items Influence Profit?

For anyone who wants to understand LOTTE Fine Chemical's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by ₩13b due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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 LOTTE Fine Chemical doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On LOTTE Fine Chemical's Profit Performance

Because unusual items detracted from LOTTE Fine Chemical'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 LOTTE Fine Chemical's earnings potential is at least as good as it seems, and maybe even better! On the other hand, its EPS actually shrunk in the last twelve months. 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. If you'd like to know more about LOTTE Fine Chemical as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 2 warning signs with LOTTE Fine Chemical, and understanding them should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of LOTTE Fine Chemical's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. 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.