We're Not So Sure You Should Rely on eSang NetworksLtd's (KOSDAQ:080010) Statutory Earnings

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether eSang NetworksLtd's (KOSDAQ:080010) statutory profits are a good guide to its underlying earnings.

While eSang NetworksLtd was able to generate revenue of ₩43.0b in the last twelve months, we think its profit result of ₩7.79b was more important. In the last few years both its revenue and its profit have fallen, as you can see in the chart below.

Check out our latest analysis for eSang NetworksLtd

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

How Do Unusual Items Influence Profit?

For anyone who wants to understand eSang NetworksLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₩10b worth of 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. Which is hardly surprising, given the name. We can see that eSang NetworksLtd'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 eSang NetworksLtd's Profit Performance

As previously mentioned, eSang NetworksLtd'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 eSang NetworksLtd's underlying earnings power is lower than its statutory profit. In further bad news, its earnings per share decreased 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. So while earnings quality is important, it's equally important to consider the risks facing eSang NetworksLtd at this point in time. Every company has risks, and we've spotted 3 warning signs for eSang NetworksLtd you should know about.

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