Stock Analysis

We Wouldn't Rely On TelcowareLtd's (KRX:078000) Statutory Earnings As A Guide

KOSE:A078000
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Broadly speaking, profitable businesses are less risky than unprofitable ones. 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 TelcowareLtd (KRX:078000).

While TelcowareLtd was able to generate revenue of ₩39.7b in the last twelve months, we think its profit result of ₩2.72b was more important. In the last few years both its revenue and its profit have fallen, as you can see in the chart below.

See our latest analysis for TelcowareLtd

earnings-and-revenue-history
KOSE:A078000 Earnings and Revenue History February 17th 2021

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 TelcowareLtd'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 TelcowareLtd.

The Impact Of Unusual Items On Profit

For anyone who wants to understand TelcowareLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₩1.7b worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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'. TelcowareLtd had a rather significant contribution from unusual items relative to its profit to September 2020. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On TelcowareLtd's Profit Performance

As previously mentioned, TelcowareLtd's large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. As a result, we think it may well be the case that TelcowareLtd's underlying earnings power is lower than its statutory profit. In further bad news, its earnings per share decreased in the last year. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. To help with this, we've discovered 5 warning signs (1 shouldn't be ignored!) that you ought to be aware of before buying any shares in TelcowareLtd.

Today we've zoomed in on a single data point to better understand the nature of TelcowareLtd's profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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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