Does Suprema HQ's (KOSDAQ:094840) Statutory Profit Adequately Reflect Its Underlying Profit?

Broadly speaking, profitable businesses are less risky than unprofitable ones. 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. Today we'll focus on whether this year's statutory profits are a good guide to understanding Suprema HQ (KOSDAQ:094840).

It's good to see that over the last twelve months Suprema HQ made a profit of ₩7.74b on revenue of ₩24.5b. Below, you can see that both its revenue and its profit have fallen over the last three years.

Check out our latest analysis for Suprema HQ

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 Suprema HQ'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 Suprema HQ.

How Do Unusual Items Influence Profit?

To properly understand Suprema HQ's profit results, we need to consider the ₩207m gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. If Suprema HQ doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On Suprema HQ's Profit Performance

We'd posit that Suprema HQ's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Suprema HQ's true underlying earnings power is actually less than its statutory profit. The good news is that, its earnings per share increased by 23% 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. In terms of investment risks, we've identified 1 warning sign with Suprema HQ, and understanding it should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Suprema HQ'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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