Is There More To The Story Than Kwang Dong Pharmaceutical's (KRX:009290) Earnings Growth?

Statistically speaking, it is less risky to invest in profitable companies than in 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. In this article, we'll look at how useful this year's statutory profit is, when analysing Kwang Dong Pharmaceutical (KRX:009290).

While Kwang Dong Pharmaceutical was able to generate revenue of ₩1.26t in the last twelve months, we think its profit result of ₩54.6b was more important. Happily, it has grown both its profit and revenue over the last three years, as you can see in the chart below.

View our latest analysis for Kwang Dong Pharmaceutical

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. This article will focus on the impact unusual items have had on Kwang Dong Pharmaceutical's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Kwang Dong Pharmaceutical.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Kwang Dong Pharmaceutical's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₩23b worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. Kwang Dong Pharmaceutical 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 Kwang Dong Pharmaceutical's Profit Performance

As previously mentioned, Kwang Dong Pharmaceutical's 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 Kwang Dong Pharmaceutical's underlying earnings power is lower than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. 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 Kwang Dong Pharmaceutical, you'd also look into what risks it is currently facing. To that end, you should learn about the 2 warning signs we've spotted with Kwang Dong Pharmaceutical (including 1 which is potentially serious).

This note has only looked at a single factor that sheds light on the nature of Kwang Dong Pharmaceutical's 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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