We Wouldn't Rely On Shin Poong Pharm.Co.Ltd's (KRX:019170) Statutory Earnings As A Guide

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. This article will consider whether Shin Poong Pharm.Co.Ltd's (KRX:019170) statutory profits are a good guide to its underlying earnings.

While Shin Poong Pharm.Co.Ltd was able to generate revenue of ₩196.9b in the last twelve months, we think its profit result of ₩5.34b was more important. The good news is that the company managed to grow its revenue over the last three years, and also move from loss-making to profitable.

View our latest analysis for Shin Poong Pharm.Co.Ltd

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 Shin Poong Pharm.Co.Ltd's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Shin Poong Pharm.Co.Ltd.

How Do Unusual Items Influence Profit?

To properly understand Shin Poong Pharm.Co.Ltd's profit results, we need to consider the ₩4.1b gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. We can see that Shin Poong Pharm.Co.Ltd's 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 Shin Poong Pharm.Co.Ltd's Profit Performance

As previously mentioned, Shin Poong Pharm.Co.Ltd'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 Shin Poong Pharm.Co.Ltd's underlying earnings power is lower than its statutory profit. The good news is that, its earnings per share increased by 45% in the last year. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Every company has risks, and we've spotted 3 warning signs for Shin Poong Pharm.Co.Ltd you should know about.

This note has only looked at a single factor that sheds light on the nature of Shin Poong Pharm.Co.Ltd's 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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