Does Korea New Network's (KOSDAQ:058400) Statutory Profit Adequately Reflect Its Underlying Profit?

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. This article will consider whether Korea New Network's (KOSDAQ:058400) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months Korea New Network made a profit of ₩5.14b on revenue of ₩62.6b. Below, you can see that both its revenue and its profit have fallen over the last three years.

Check out our latest analysis for Korea New Network

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 discuss how unusual items have impacted Korea New Network'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 Korea New Network.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Korea New Network's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₩600m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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 that's as you'd expect, given these boosts are described as 'unusual'. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Our Take On Korea New Network's Profit Performance

Arguably, Korea New Network's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Korea New Network's statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. 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 if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Every company has risks, and we've spotted 2 warning signs for Korea New Network (of which 1 is significant!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of Korea New Network's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. 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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