Weak Statutory Earnings May Not Tell The Whole Story For Daemyoung EnergyLtd (KOSDAQ:389260)

Daemyoung Energy Co.,Ltd's (KOSDAQ:389260) recent weak earnings report didn't cause a big stock movement. However, we believe that investors should be aware of some underlying factors which may be of concern.

See our latest analysis for Daemyoung EnergyLtd

An Unusual Tax Situation

Daemyoung EnergyLtd reported a tax benefit of ₩2.5b, which is well worth noting. It's always a bit noteworthy when a company is paid by the tax man, rather than paying the tax man. We're sure the company was pleased with its tax benefit. However, the devil in the detail is that these kind of benefits only impact in the year they are booked, and are often one-off in nature. In the likely event the tax benefit is not repeated, we'd expect to see its statutory profit levels drop, at least in the absence of strong growth. While we think it's good that the company has booked a tax benefit, it does mean that there's every chance the statutory profit will come in a lot higher than it would be if the income was adjusted for one-off factors.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Daemyoung EnergyLtd.

Our Take On Daemyoung EnergyLtd's Profit Performance

As we have already discussed Daemyoung EnergyLtd reported that it received a tax benefit, rather than paying tax, in the last year. As a result we don't think its profit result, which includes that tax-boost, is a good guide to its sustainable profit levels. Therefore, it seems possible to us that Daemyoung EnergyLtd's true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased in the last year. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. To help with this, we've discovered 4 warning signs (3 are significant!) that you ought to be aware of before buying any shares in Daemyoung EnergyLtd.

This note has only looked at a single factor that sheds light on the nature of Daemyoung EnergyLtd'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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.