Are Moda-InnoChips's (KOSDAQ:080420) Statutory Earnings A Good Guide To Its Underlying Profitability?

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. This article will consider whether Moda-InnoChips' (KOSDAQ:080420) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months Moda-InnoChips made a profit of ₩5.00b on revenue of ₩396.3b. While it managed to grow its revenue over the last three years, its profit has moved in the other direction, as you can see in the chart below.

Check out our latest analysis for Moda-InnoChips

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. This article will discuss how unusual items have impacted Moda-InnoChips' most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Moda-InnoChips.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Moda-InnoChips' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by ₩4.5b due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. If Moda-InnoChips doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On Moda-InnoChips' Profit Performance

Unusual items (expenses) detracted from Moda-InnoChips' earnings over the last year, but we might see an improvement next year. Because of this, we think Moda-InnoChips' earnings potential is at least as good as it seems, and maybe even better! On the other hand, its EPS actually shrunk in the last twelve months. 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 Moda-InnoChips, you'd also look into what risks it is currently facing. When we did our research, we found 5 warning signs for Moda-InnoChips (2 are potentially serious!) that we believe deserve your full attention.

Today we've zoomed in on a single data point to better understand the nature of Moda-InnoChips' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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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