Investors Can Find Comfort In Sang-A FrontecLtd's (KOSDAQ:089980) Earnings Quality

Shareholders appeared unconcerned with Sang-A Frontec Co.,Ltd.'s (KOSDAQ:089980) lackluster earnings report last week. We did some digging, and we believe the earnings are stronger than they seem.

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How Do Unusual Items Influence Profit?

For anyone who wants to understand Sang-A FrontecLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by ₩1.3b due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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. If Sang-A FrontecLtd doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Sang-A FrontecLtd's Profit Performance

Because unusual items detracted from Sang-A FrontecLtd's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Sang-A FrontecLtd's statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in the last twelve months. 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. So while earnings quality is important, it's equally important to consider the risks facing Sang-A FrontecLtd at this point in time. At Simply Wall St, we found 2 warning signs for Sang-A FrontecLtd and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Sang-A FrontecLtd's profit. But there are plenty of other ways to inform your opinion of a company. 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.