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. In this article, we’ll look at how useful this year’s statutory profit is, when analysing LSIS (KRX:010120).
While LSIS was able to generate revenue of ₩2.28t in the last twelve months, we think its profit result of ₩107.8b was more important. In the chart below, you can see that its profit and revenue have both grown over the last three years, albeit not in the last year.
See our latest analysis for LSIS
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 focus on the impact unusual items have had on LSIS’s statutory earnings. 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.
How Do Unusual Items Influence Profit?
For anyone who wants to understand LSIS’s profit beyond the statutory numbers, it’s important to note that during the last twelve months statutory profit gained from ₩18b 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 crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And that’s as you’d expect, given these boosts are described as ‘unusual’. If LSIS 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 LSIS’s Profit Performance
Arguably, LSIS’s statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that LSIS’s true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 25% per annum growth in EPS for the last three. 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. Ultimately, this article has formed an opinion based on historical data. However, it can also be great to think about what analysts are forecasting for the future. Luckily, you can check out what analysts are forecsting by clicking here.
This note has only looked at a single factor that sheds light on the nature of LSIS’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 that insiders are buying.
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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January 14, 2020 at 12:43PM
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Does LSIS’s (KRX:010120) Statutory Profit Adequately Reflect Its Underlying Profit? - Simply Wall St
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