KPX ChemicalLtd's (KRX:025000) Profits Appear To Have Quality Issues

KPX Chemical Co.,Ltd.'s (KRX:025000) healthy profit numbers didn't contain any surprises for investors. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

See our latest analysis for KPX ChemicalLtd

The Impact Of Unusual Items On Profit

Importantly, our data indicates that KPX ChemicalLtd's profit received a boost of ₩14b 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. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And, after all, that's exactly what the accounting terminology implies. If KPX ChemicalLtd 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 KPX ChemicalLtd.

Our Take On KPX ChemicalLtd's Profit Performance

Arguably, KPX ChemicalLtd's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that KPX ChemicalLtd's statutory profits are better than its underlying earnings power. But the happy news is that, while acknowledging we have to look beyond the statutory numbers, those numbers are still improving, with EPS growing at a very high rate over the last year. 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 KPX ChemicalLtd at this point in time. For example - KPX ChemicalLtd has 1 warning sign we think you should be aware of.

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