Ilsung Pharmaceuticals (KRX:003120) Is Growing Earnings But Are They A Good Guide?

As a general rule, we think profitable companies are less risky than companies that lose money. 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. Today we'll focus on whether this year's statutory profits are a good guide to understanding Ilsung Pharmaceuticals (KRX:003120).

While Ilsung Pharmaceuticals was able to generate revenue of ₩43.3b in the last twelve months, we think its profit result of ₩4.47b was more important. Even though its revenue is down over the last three years, its profit has actually increased, as you can see, below.

Check out our latest analysis for Ilsung Pharmaceuticals

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

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Ilsung Pharmaceuticals' profit received a boost of ₩3.4b 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. 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. We can see that Ilsung Pharmaceuticals' positive unusual items were quite significant relative to its profit in the year to September 2020. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On Ilsung Pharmaceuticals' Profit Performance

As previously mentioned, Ilsung Pharmaceuticals' large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. As a result, we think it may well be the case that Ilsung Pharmaceuticals' underlying earnings power is lower than its statutory profit. But at least holders can take some solace from the 6.4% per annum growth in EPS for the last three. 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 Ilsung Pharmaceuticals, you'd also look into what risks it is currently facing. To help with this, we've discovered 2 warning signs (1 makes us a bit uncomfortable!) that you ought to be aware of before buying any shares in Ilsung Pharmaceuticals.

Today we've zoomed in on a single data point to better understand the nature of Ilsung Pharmaceuticals' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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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