Does Seoul Broadcasting System's (KRX:034120) 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. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether Seoul Broadcasting System's (KRX:034120) statutory profits are a good guide to its underlying earnings.

We like the fact that Seoul Broadcasting System made a profit of ₩8.64b on its revenue of ₩806.5b, in the last year. In the last few years its profit has fallen, although its revenue was steady, as you can see in the chart below.

Check out our latest analysis for Seoul Broadcasting System

Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. This article will focus on the impact unusual items have had on Seoul Broadcasting System's statutory earnings. 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.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Seoul Broadcasting System's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by ₩12b 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. Seoul Broadcasting System took a rather significant hit from unusual items in the year to June 2020. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.

Our Take On Seoul Broadcasting System's Profit Performance

As we discussed above, we think the significant unusual expense will make Seoul Broadcasting System's statutory profit lower than it would otherwise have been. Because of this, we think Seoul Broadcasting System's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! And on top of that, its earnings per share have grown at an extremely impressive 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. 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. To help with this, we've discovered 3 warning signs (1 is a bit unpleasant!) that you ought to be aware of before buying any shares in Seoul Broadcasting System.

This note has only looked at a single factor that sheds light on the nature of Seoul Broadcasting System'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 that insiders are buying to be useful.

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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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