Why Hwang Kum Steel & Technology's (KRX:032560) Shaky Earnings Are Just The Beginning Of Its Problems

The subdued market reaction suggests that Hwang Kum Steel & Technology Co., Ltd's (KRX:032560) recent earnings didn't contain any surprises. We think that investors are worried about some weaknesses underlying the earnings.

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How Do Unusual Items Influence Profit?

To properly understand Hwang Kum Steel & Technology's profit results, we need to consider the ₩5.6b gain attributed to 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).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Hwang Kum Steel & Technology.

Our Take On Hwang Kum Steel & Technology's Profit Performance

Arguably, Hwang Kum Steel & Technology's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Hwang Kum Steel & Technology's true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over the last twelve months. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. While conducting our analysis, we found that Hwang Kum Steel & Technology has 3 warning signs and it would be unwise to ignore these bad boys.

Today we've zoomed in on a single data point to better understand the nature of Hwang Kum Steel & Technology'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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.