Why Korea Computer & Systems' (KOSDAQ:115500) Shaky Earnings Are Just The Beginning Of Its Problems

The market wasn't impressed with the soft earnings from Korea Computer & Systems Inc. (KOSDAQ:115500) recently. We did some analysis, and found that there are some reasons to be cautious about the headline numbers.

We've discovered 4 warning signs about Korea Computer & Systems. View them for free.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Korea Computer & Systems' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₩250m worth of 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. 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. And that's as you'd expect, given these boosts are described as 'unusual'. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Korea Computer & Systems.

Our Take On Korea Computer & Systems' Profit Performance

Arguably, Korea Computer & Systems' statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Korea Computer & Systems' statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example, Korea Computer & Systems has 4 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

Today we've zoomed in on a single data point to better understand the nature of Korea Computer & Systems' 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.