Kwang Dong Pharmaceutical's (KRX:009290) Weak Earnings May Only Reveal A Part Of The Whole Picture

The subdued market reaction suggests that Kwang Dong Pharmaceutical Co., Ltd.'s (KRX:009290) recent earnings didn't contain any surprises. We think that investors are worried about some weaknesses underlying the earnings.

See our latest analysis for Kwang Dong Pharmaceutical

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Kwang Dong Pharmaceutical's profit received a boost of ₩28b in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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. We can see that Kwang Dong Pharmaceutical's positive unusual items were quite significant relative to its profit in the year to September 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Kwang Dong Pharmaceutical.

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. For this reason, we think that Kwang Dong Pharmaceutical's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. But the good news is that its EPS growth over the last three years has been very impressive. 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. If you want to do dive deeper into Kwang Dong Pharmaceutical, you'd also look into what risks it is currently facing. For example - Kwang Dong Pharmaceutical has 2 warning signs we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Kwang Dong Pharmaceutical'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 with significant insider holdings to be useful.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.