Raonsecure's (KOSDAQ:042510) Soft Earnings Are Actually Better Than They Appear

Soft earnings didn't appear to concern Raonsecure Co., Ltd.'s (KOSDAQ:042510) shareholders over the last week. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

Check out our latest analysis for Raonsecure

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Raonsecure expanded the number of shares on issue by 45% over the last year. As a result, its net income is now split between a greater number of shares. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. You can see a chart of Raonsecure's EPS by clicking here.

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

Raonsecure was losing money three years ago. Even looking at the last year, profit was still down 38%. Sadly, earnings per share fell further, down a full 40% in that time. And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.

In the long term, if Raonsecure's earnings per share can increase, then the share price should too. 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.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

How Do Unusual Items Influence Profit?

Alongside that dilution, it's also important to note that Raonsecure's profit suffered from unusual items, which reduced profit by ₩1.2b 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. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. Raonsecure took a rather significant hit from unusual items in the year to December 2023. As a result, we can surmise that the unusual items made its statutory profit significantly weaker than it would otherwise be.

Our Take On Raonsecure's Profit Performance

To sum it all up, Raonsecure took a hit from unusual items which pushed its profit down; without that, it would have made more money. 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. Based on these factors, it's hard to tell if Raonsecure's profits are a reasonable reflection of its underlying profitability. If you want to do dive deeper into Raonsecure, you'd also look into what risks it is currently facing. For example - Raonsecure has 2 warning signs we think you should be aware of.

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. 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. 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.