Here's Why We Don't Think UbiVelox's (KOSDAQ:089850) Statutory Earnings Reflect Its Underlying Earnings Potential

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. Today we'll focus on whether this year's statutory profits are a good guide to understanding UbiVelox (KOSDAQ:089850).

While UbiVelox was able to generate revenue of ₩277.6b in the last twelve months, we think its profit result of ₩7.88b was more important.

See our latest analysis for UbiVelox

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 discuss how unusual items have impacted UbiVelox's most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of UbiVelox.

How Do Unusual Items Influence Profit?

To properly understand UbiVelox's profit results, we need to consider the ₩3.3b gain attributed to unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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. If UbiVelox doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On UbiVelox's Profit Performance

We'd posit that UbiVelox's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that UbiVelox's true underlying earnings power is actually less than its statutory profit. The good news is that, its earnings per share increased by 17% in the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. You'd be interested to know, that we found 3 warning signs for UbiVelox and you'll want to know about them.

Today we've zoomed in on a single data point to better understand the nature of UbiVelox'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 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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