Is There More To The Story Than Hansol Holdings's (KRX:004150) Earnings Growth?

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether Hansol Holdings' (KRX:004150) statutory profits are a good guide to its underlying earnings.

While Hansol Holdings was able to generate revenue of ₩526.9b in the last twelve months, we think its profit result of ₩8.71b was more important. The chart below shows how profit has actually increased over the last three years, even while revenue has declined.

Check out our latest analysis for Hansol Holdings

Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. This article will discuss how unusual items have impacted Hansol Holdings' most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Hansol Holdings.

The Impact Of Unusual Items On Profit

To properly understand Hansol Holdings' profit results, we need to consider the ₩9.7b gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. We can see that Hansol Holdings' positive unusual items were quite significant relative to its profit in the year to September 2020. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On Hansol Holdings' Profit Performance

As we discussed above, we think the significant positive unusual item makes Hansol Holdings'earnings a poor guide to its underlying profitability. For this reason, we think that Hansol Holdings' statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. But the good news is that its EPS growth over the last three years has been very impressive. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Case in point: We've spotted 1 warning sign for Hansol Holdings you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Hansol Holdings' 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. 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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