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. In this article, we’ll look at how useful this year’s statutory profit is, when analysing Sigong Tech (KOSDAQ:020710).
While Sigong Tech was able to generate revenue of ₩124.3b in the last twelve months, we think its profit result of ₩15.2b was more important. The chart below shows that revenue has improved over the last three years, and, even better, the company has moved from unprofitable to profitable.
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 Sigong Tech’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 Sigong Tech.
The Impact Of Unusual Items On Profit
For anyone who wants to understand Sigong Tech’s profit beyond the statutory numbers, it’s important to note that during the last twelve months statutory profit gained from ₩862m worth of 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. Which is hardly surprising, given the name. Assuming those unusual items don’t show up again in the current year, we’d thus expect profit to be weaker next year (in the absence of business growth, that is).
Our Take On Sigong Tech’s Profit Performance
Arguably, Sigong Tech’s statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Sigong Tech’s true underlying earnings power is actually less than its statutory profit. The silver lining is that its EPS growth over the last year has been really wonderful, even if it’s not a perfect measure. 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. So while earnings quality is important, it’s equally important to consider the risks facing Sigong Tech at this point in time. At Simply Wall St, we found 2 warning signs for Sigong Tech and we think they deserve your attention.
Today we’ve zoomed in on a single data point to better understand the nature of Sigong Tech’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.
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. Thank you for reading.
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