We're Not Counting On Hwang Kum Steel & Technology (KRX:032560) To Sustain Its Statutory Profitability

Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. Today we'll focus on whether this year's statutory profits are a good guide to understanding Hwang Kum Steel & Technology (KRX:032560).

While Hwang Kum Steel & Technology was able to generate revenue of ₩239.4b in the last twelve months, we think its profit result of ₩9.37b was more important. While it managed to grow its revenue over the last three years, its profit has moved in the other direction, as you can see in the chart below.

View our latest analysis for Hwang Kum Steel & Technology

Not all profits are equal, and we can learn more about the nature of a company's past profitability by diving deeper into the financial statements. This article will focus on the impact unusual items have had on Hwang Kum Steel & Technology's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Hwang Kum Steel & Technology.

How Do Unusual Items Influence Profit?

To properly understand Hwang Kum Steel & Technology's profit results, we need to consider the ₩27b gain attributed to unusual items. 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 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 Hwang Kum Steel & Technology's positive unusual items were quite significant relative to its profit in the year to September 2020. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On Hwang Kum Steel & Technology's Profit Performance

As we discussed above, we think the significant positive unusual item makes Hwang Kum Steel & Technology'searnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Hwang Kum Steel & Technology's underlying earnings power is lower than its statutory profit. Sadly, its EPS was down over the last twelve months. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. In terms of investment risks, we've identified 2 warning signs with Hwang Kum Steel & Technology, and understanding these bad boys should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Hwang Kum Steel & Technology'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 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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