We Think Sejong Telecom's (KOSDAQ:036630) Statutory Profit Might Understate Its Earnings Potential

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. 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 Sejong Telecom's (KOSDAQ:036630) statutory profits are a good guide to its underlying earnings.

While Sejong Telecom was able to generate revenue of ₩283.7b in the last twelve months, we think its profit result of ₩1.97b was more important.

View our latest analysis for Sejong Telecom

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 Sejong Telecom'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 Sejong Telecom.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Sejong Telecom's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by ₩1.7b due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. 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. In the twelve months to September 2020, Sejong Telecom had a big unusual items expense. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.

Our Take On Sejong Telecom's Profit Performance

As we discussed above, we think the significant unusual expense will make Sejong Telecom's statutory profit lower than it would otherwise have been. Because of this, we think Sejong Telecom's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! And one can definitely find a positive in the fact that it made a profit this year, despite losing money 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. In terms of investment risks, we've identified 2 warning signs with Sejong Telecom, and understanding them should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Sejong Telecom's 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. 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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