Weak Statutory Earnings May Not Tell The Whole Story For Korea Zinc Company (KRX:010130)

Korea Zinc Company, Ltd.'s (KRX:010130) recent weak earnings report didn't cause a big stock movement. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

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One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Korea Zinc Company expanded the number of shares on issue by 6.5% over the last year. Therefore, each share now receives a smaller portion of profit. Per share metrics like EPS help us understand how much actual shareholders are benefitting from the company's profits, while the net income level gives us a better view of the company's absolute size. Check out Korea Zinc Company's historical EPS growth by clicking on this link.

A Look At The Impact Of Korea Zinc Company's Dilution On Its Earnings Per Share (EPS)

Unfortunately, Korea Zinc Company's profit is down 56% per year over three years. And even focusing only on the last twelve months, we see profit is down 50%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 43% in the same period. And so, you can see quite clearly that dilution is influencing shareholder earnings.

If Korea Zinc Company's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. For that reason, you could say that EPS is more important that net income in the long run, assuming the goal is to assess whether a company's share price might grow.

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 Korea Zinc Company's Profit Performance

Korea Zinc Company issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that Korea Zinc Company'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. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example, we've found that Korea Zinc Company has 4 warning signs (3 are a bit unpleasant!) that deserve your attention before going any further with your analysis.

This note has only looked at a single factor that sheds light on the nature of Korea Zinc Company's profit. But there are plenty of other ways to inform your opinion of a company. 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.