Stock Analysis

We're Not So Sure You Should Rely on Green Cross Holdings's (KRX:005250) Statutory Earnings

KOSE:A005250
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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. This article will consider whether Green Cross Holdings' (KRX:005250) statutory profits are a good guide to its underlying earnings.

While Green Cross Holdings was able to generate revenue of ₩1.64t in the last twelve months, we think its profit result of ₩56.1b was more important. As you can see in the chart below, its profit has declined over the last three years, even though its revenue has increased.

View our latest analysis for Green Cross Holdings

earnings-and-revenue-history
KOSE:A005250 Earnings and Revenue History January 12th 2021

Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. This article will focus on the impact unusual items have had on Green Cross Holdings' statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Green Cross Holdings.

The Impact Of Unusual Items On Profit

To properly understand Green Cross Holdings' profit results, we need to consider the ₩76b gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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. Green Cross Holdings had a rather significant contribution from unusual items relative to its profit 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 Green Cross Holdings' Profit Performance

As previously mentioned, Green Cross Holdings' 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 Green Cross Holdings' underlying earnings power is lower than its statutory profit. But at least holders can take some solace from the 46% EPS growth in the last year. 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 Green Cross Holdings, you'd also look into what risks it is currently facing. To that end, you should learn about the 4 warning signs we've spotted with Green Cross Holdings (including 2 which shouldn't be ignored).

Today we've zoomed in on a single data point to better understand the nature of Green Cross Holdings' 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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