Are Korean Drug's (KOSDAQ:014570) Statutory Earnings A Good Reflection Of Its Earnings Potential?

Broadly speaking, profitable businesses are less risky than unprofitable ones. 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 Korean Drug's (KOSDAQ:014570) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months Korean Drug made a profit of ₩7.20b on revenue of ₩62.1b. Happily, it has grown both its profit and revenue over the last three years, as you can see in the chart below.

Check out our latest analysis for Korean Drug

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 Korean Drug'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 Korean Drug.

How Do Unusual Items Influence Profit?

To properly understand Korean Drug's profit results, we need to consider the ₩1.2b gain attributed to unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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, after all, that's exactly what the accounting terminology implies. If Korean Drug doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On Korean Drug's Profit Performance

Arguably, Korean Drug's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Korean Drug's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 42% per annum growth in EPS for the last three. 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. While earnings are important, another area to consider is the balance sheet. If you're interested we have a graphic representation of Korean Drug's balance sheet.

Today we've zoomed in on a single data point to better understand the nature of Korean Drug's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. 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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