Broadly speaking, profitable businesses are less risky than unprofitable ones. That said, the current statutory profit is not always a good guide to a company’s underlying profitability. This article will consider whether Asia Business Daily’s (KOSDAQ:127710) statutory profits are a good guide to its underlying earnings.
We like the fact that Asia Business Daily made a profit of ₩7.20b on its revenue of ₩60.7b, in the last year. In the chart below, you can see that its profit and revenue have both grown over the last three years.
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 discuss how unusual items have impacted Asia Business Daily’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 Asia Business Daily.
How Do Unusual Items Influence Profit?
For anyone who wants to understand Asia Business Daily’s profit beyond the statutory numbers, it’s important to note that during the last twelve months statutory profit was reduced by ₩1.7b due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that’s exactly what the accounting terminology implies. Asia Business Daily took a rather significant hit from unusual items in the year to September 2020. As a result, we can surmise that the unusual items made its statutory profit significantly weaker than it would otherwise be.
Our Take On Asia Business Daily’s Profit Performance
As we discussed above, we think the significant unusual expense will make Asia Business Daily’s statutory profit lower than it would otherwise have been. Based on this observation, we consider it possible that Asia Business Daily’s statutory profit actually understates its earnings potential! Furthermore, it has done a great job growing EPS over the 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. In light of this, if you’d like to do more analysis on the company, it’s vital to be informed of the risks involved. To that end, you should learn about the 3 warning signs we’ve spotted with Asia Business Daily (including 1 which doesn’t sit too well with us).
Today we’ve zoomed in on a single data point to better understand the nature of Asia Business Daily’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. 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.
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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.
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