KG Dongbu SteelLtd's (KRX:016380) Problems Go Beyond Weak Profit

A lackluster earnings announcement from KG Dongbu Steel Co.,Ltd. (KRX:016380) last week didn't sink the stock price. However, we believe that investors should be aware of some underlying factors which may be of concern.

See our latest analysis for KG Dongbu SteelLtd

The Impact Of Unusual Items On Profit

Importantly, our data indicates that KG Dongbu SteelLtd's profit received a boost of ₩75b in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And that's as you'd expect, given these boosts are described as 'unusual'. If KG Dongbu SteelLtd doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of KG Dongbu SteelLtd.

Our Take On KG Dongbu SteelLtd's Profit Performance

Arguably, KG Dongbu SteelLtd's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that KG Dongbu SteelLtd's true underlying earnings power is actually less than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. So while earnings quality is important, it's equally important to consider the risks facing KG Dongbu SteelLtd at this point in time. While conducting our analysis, we found that KG Dongbu SteelLtd has 3 warning signs and it would be unwise to ignore these bad boys.

Today we've zoomed in on a single data point to better understand the nature of KG Dongbu SteelLtd'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. 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. 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.