Korn Ferry's (NYSE:KFY) Conservative Accounting Might Explain Soft Earnings

The market for Korn Ferry's (NYSE:KFY) shares didn't move much after it posted weak earnings recently. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

Check out our latest analysis for Korn Ferry

The Impact Of Unusual Items On Profit

For anyone who wants to understand Korn Ferry's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by US$58m 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, after all, that's exactly what the accounting terminology implies. If Korn Ferry 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 Korn Ferry's Profit Performance

Unusual items (expenses) detracted from Korn Ferry's earnings over the last year, but we might see an improvement next year. Because of this, we think Korn Ferry's earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share have grown at an extremely impressive rate over the last three years. 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'd like to know more about Korn Ferry as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 4 warning signs for Korn Ferry you should know about.

Today we've zoomed in on a single data point to better understand the nature of Korn Ferry'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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.