We Think Daesung Industrial's (KRX:128820) Healthy Earnings Might Be Conservative

The market seemed underwhelmed by the solid earnings posted by Daesung Industrial Co., Ltd. (KRX:128820) recently. Our analysis suggests that there are some reasons for hope that investors should be aware of.

View our latest analysis for Daesung Industrial

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Daesung Industrial issued 5.8% more new shares over the last year. That means its earnings are split among a greater number of shares. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. You can see a chart of Daesung Industrial's EPS by clicking here.

How Is Dilution Impacting Daesung Industrial's Earnings Per Share? (EPS)

Unfortunately, we don't have any visibility into its profits three years back, because we lack the data. And even focusing only on the last twelve months, we don't have a meaningful growth rate because it made a loss a year ago, too. What we do know is that while it's great to see a profit over the last twelve months, that profit would have been better, on a per share basis, if the company hadn't needed to issue shares. So you can see that the dilution has had a bit of an impact on shareholders.

If Daesung Industrial's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. For that reason, you could say that EPS is more important that net income in the long run, assuming the goal is to assess whether a company's share price might grow.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Daesung Industrial.

The Impact Of Unusual Items On Profit

Alongside that dilution, it's also important to note that Daesung Industrial's profit suffered from unusual items, which reduced profit by ₩3.9b in the last twelve months. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. In the twelve months to December 2020, Daesung Industrial had a big unusual items expense. As a result, we can surmise that the unusual items made its statutory profit significantly weaker than it would otherwise be.

Our Take On Daesung Industrial's Profit Performance

Daesung Industrial suffered from unusual items which depressed its profit in its last report; if that is not repeated then profit should be higher, all else being equal. But unfortunately the dilution means that shareholders now own a smaller proportion of the company (assuming they maintained the same number of shares). That will weigh on earnings per share, even if it is not reflected in net income. Considering all the aforementioned, we'd venture that Daesung Industrial's profit result is a pretty good guide to its true profitability, albeit a bit on the conservative side. If you want to do dive deeper into Daesung Industrial, you'd also look into what risks it is currently facing. For example, Daesung Industrial has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.

In this article we've looked at a number of factors that can impair the utility of profit numbers, as a guide to a business. 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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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