Are Chokwang Paint's (KRX:004910) Statutory Earnings A Good Guide To Its Underlying Profitability?

Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether Chokwang Paint's (KRX:004910) statutory profits are a good guide to its underlying earnings.

We like the fact that Chokwang Paint made a profit of ₩6.32b on its revenue of ₩199.7b, in the last year.

View our latest analysis for Chokwang Paint

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 Chokwang Paint'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 Chokwang Paint.

The Impact Of Unusual Items On Profit

To properly understand Chokwang Paint's profit results, we need to consider the ₩825m expense attributed 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. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. If Chokwang Paint doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On Chokwang Paint's Profit Performance

Because unusual items detracted from Chokwang Paint'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 Chokwang Paint's earnings potential is at least as good as it seems, and maybe even better! And one can definitely find a positive in the fact that it made a profit this year, despite losing money last year. 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 while earnings quality is important, it's equally important to consider the risks facing Chokwang Paint at this point in time. Every company has risks, and we've spotted 4 warning signs for Chokwang Paint (of which 2 make us uncomfortable!) you should know about.

This note has only looked at a single factor that sheds light on the nature of Chokwang Paint'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 that insiders are buying.

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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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