Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. That said, the current statutory profit is not always a good guide to a company’s underlying profitability. Today we’ll focus on whether this year’s statutory profits are a good guide to understanding INFAC (KRX:023810).
While INFAC was able to generate revenue of ₩357.2b in the last twelve months, we think its profit result of ₩1.59b was more important.
See our latest analysis for INFAC
Importantly, statutory profits are not always the best tool for understanding a company’s true earnings power, so it’s well worth examining profits in a little more detail. This article will focus on the impact unusual items have had on INFAC’s statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of INFAC.
How Do Unusual Items Influence Profit?
To properly understand INFAC’s profit results, we need to consider the ₩494m gain attributed to unusual items. While it’s always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it’s very common for unusual items to be once-off in nature. Which is hardly suprising, given the name. If INFAC 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 INFAC’s Profit Performance
We’d posit that INFAC’s statutory earnings aren’t a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that INFAC’s statutory profits are better than its underlying earnings power. On the bright side, the company showed enough improvement to book a profit this year, after losing money 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. Just as investors must consider earnings, it is also important to take into account the strength of a company’s balance sheet. If you’re interestedwe have a graphic representation of INFAC’s balance sheet.
This note has only looked at a single factor that sheds light on the nature of INFAC’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.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
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December 31, 2019 at 01:39PM
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Does INFAC’s (KRX:023810) Statutory Profit Adequately Reflect Its Underlying Profit? - Simply Wall St
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