We're Not So Sure You Should Rely on FINEDIGITAL's (KOSDAQ:038950) Statutory Earnings

As a general rule, we think profitable companies are less risky than companies that lose money. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. In this article, we'll look at how useful this year's statutory profit is, when analysing FINEDIGITAL (KOSDAQ:038950).

We like the fact that FINEDIGITAL made a profit of ₩7.86b on its revenue of ₩105.7b, in the last year.

View our latest analysis for FINEDIGITAL

Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. This article will discuss how unusual items have impacted FINEDIGITAL'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 FINEDIGITAL.

The Impact Of Unusual Items On Profit

To properly understand FINEDIGITAL's profit results, we need to consider the ₩2.2b gain attributed to unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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. We can see that FINEDIGITAL's positive unusual items were quite significant relative to its profit in the year to September 2020. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On FINEDIGITAL's Profit Performance

As we discussed above, we think the significant positive unusual item makes FINEDIGITAL'searnings a poor guide to its underlying profitability. For this reason, we think that FINEDIGITAL's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. But the happy news is that, while acknowledging we have to look beyond the statutory numbers, those numbers are still improving, with EPS growing at a very high rate over 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. If you want to do dive deeper into FINEDIGITAL, you'd also look into what risks it is currently facing. In terms of investment risks, we've identified 3 warning signs with FINEDIGITAL, and understanding these should be part of your investment process.

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