Stock Analysis

Are DB's (KRX:012030) Statutory Earnings A Good Reflection Of Its Earnings Potential?

KOSE:A012030
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Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. That said, the current statutory profit is not always a good guide to a company's underlying profitability. In this article, we'll look at how useful this year's statutory profit is, when analysing DB (KRX:012030).

We like the fact that DB made a profit of ₩9.11b on its revenue of ₩265.9b, in the last year. The good news is that the company managed to grow its revenue over the last three years, and also move from loss-making to profitable.

View our latest analysis for DB

earnings-and-revenue-history
KOSE:A012030 Earnings and Revenue History December 30th 2020

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 focus on the impact unusual items have had on DB's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of DB.

The Impact Of Unusual Items On Profit

To properly understand DB's profit results, we need to consider the ₩2.6b expense attributed 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. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect DB to produce a higher profit next year, all else being equal.

Our Take On DB's Profit Performance

Because unusual items detracted from DB's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think DB'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 75% in the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. While it's very important to consider the profit and loss statement, you can also learn a lot about a company by looking at its balance sheet. If you're interested we have a graphic representation of DB's balance sheet.

This note has only looked at a single factor that sheds light on the nature of DB'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 that insiders are buying to be useful.

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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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