Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. 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 NEOWIZ HOLDINGS (KOSDAQ:042420).
It’s good to see that over the last twelve months NEOWIZ HOLDINGS made a profit of ₩30.3b on revenue of ₩254.9b. The good news is that the company managed to grow its revenue over the last three years, and also move from loss-making to profitable.
See our latest analysis for NEOWIZ HOLDINGS
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 NEOWIZ HOLDINGS’s statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of NEOWIZ HOLDINGS.
The Impact Of Unusual Items On Profit
To properly understand NEOWIZ HOLDINGS’s profit results, we need to consider the ₩20b expense attributed 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. In the twelve months to September 2019, NEOWIZ HOLDINGS had a big unusual items expense. As a result, we can surmise that the unusual items made its statutory profit significantly weaker than it would otherwise be.
Our Take On NEOWIZ HOLDINGS’s Profit Performance
As we mentioned previously, the NEOWIZ HOLDINGS’s profit was hampered by unusual items in the last year. Based on this observation, we consider it possible that NEOWIZ HOLDINGS’s statutory profit actually understates its earnings potential! And one can definitely find a positive in the fact that it made a profit this year, despite losing money 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. While earnings are important, another area to consider is the balance sheet. You can seeour latest analysis on NEOWIZ HOLDINGS’s balance sheet health here.
Today we’ve zoomed in on a single data point to better understand the nature of NEOWIZ HOLDINGS’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. 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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January 02, 2020 at 12:30PM
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We Think NEOWIZ HOLDINGS’s (KOSDAQ:042420) Statutory Profit Might Understate Its Earnings Potential - Simply Wall St
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