Earnings Troubles May Signal Larger Issues for YG Entertainment (KOSDAQ:122870) Shareholders

The subdued market reaction suggests that YG Entertainment Inc.'s (KOSDAQ:122870) recent earnings didn't contain any surprises. We think that investors are worried about some weaknesses underlying the earnings.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that YG Entertainment's profit received a boost of ₩1.5b in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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'. 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).

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On YG Entertainment's Profit Performance

Arguably, YG Entertainment's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that YG Entertainment's statutory profits are better than its underlying earnings power. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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. If you want to do dive deeper into YG Entertainment, you'd also look into what risks it is currently facing. For example - YG Entertainment 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 YG Entertainment'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 with significant insider holdings 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.