Investors Shouldn't Be Too Comfortable With Itcen's (KOSDAQ:124500) Earnings

Investors were disappointed with Itcen Co., Ltd.'s (KOSDAQ:124500) earnings, despite the strong profit numbers. We think that the market might be paying attention to some underlying factors that they find to be concerning.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Itcen's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₩6.5b worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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. 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 Itcen.

Our Take On Itcen's Profit Performance

We'd posit that Itcen's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Itcen's statutory profits are better than its underlying earnings power. The silver lining is that its EPS growth over the last year has been really wonderful, even if it's not a perfect measure. 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. If you'd like to know more about Itcen as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 3 warning signs for Itcen (of which 1 can't be ignored!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of Itcen'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. 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 with significant insider holdings 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.