Why Russell's (KOSDAQ:217500) Earnings Are Better Than They Seem

The market seemed underwhelmed by last week's earnings announcement from Russell Co., Ltd. (KOSDAQ:217500) despite the healthy numbers. We did some digging, and we think that investors are missing some encouraging factors in the underlying numbers.

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How Do Unusual Items Influence Profit?

For anyone who wants to understand Russell's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by ₩680m due to unusual items. 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. Assuming those unusual expenses don't come up again, we'd therefore expect Russell to produce a higher profit next year, all else being equal.

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

Our Take On Russell's Profit Performance

Unusual items (expenses) detracted from Russell's earnings over the last year, but we might see an improvement next year. Because of this, we think Russell's earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share increased by 71% 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For instance, we've identified 2 warning signs for Russell (1 makes us a bit uncomfortable) you should be familiar with.

Today we've zoomed in on a single data point to better understand the nature of Russell'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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.