KMH (KOSDAQ:122450) Is Growing Earnings But Are They A Good Guide?

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. 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. In this article, we'll look at how useful this year's statutory profit is, when analysing KMH (KOSDAQ:122450).

While KMH was able to generate revenue of ₩314.4b in the last twelve months, we think its profit result of ₩26.0b was more important. One positive is that it has grown both its profit and its revenue, over the last few years.

See our latest analysis for KMH

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 KMH's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of KMH.

How Do Unusual Items Influence Profit?

For anyone who wants to understand KMH's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by ₩11b due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect KMH to produce a higher profit next year, all else being equal.

Our Take On KMH's Profit Performance

Unusual items (expenses) detracted from KMH's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that KMH's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at an extremely impressive rate over the last three years. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. To that end, you should learn about the 2 warning signs we've spotted with KMH (including 1 which is a bit concerning).

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