King Wan Corporation Limited's (SGX:554) stock was strong after they recently reported robust earnings. However, our analysis suggests that shareholders may be missing some factors that indicate the earnings result was not as good as it looked.

See our latest analysis for King Wan

The Impact Of Unusual Items On Profit

Importantly, our data indicates that King Wan's profit received a boost of S$6.9m in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. We can see that King Wan's positive unusual items were quite significant relative to its profit in the year to September 2023. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of King Wan.

Our Take On King Wan's Profit Performance

As we discussed above, we think the significant positive unusual item makes King Wan's earnings a poor guide to its underlying profitability. For this reason, we think that King Wan's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. On the bright side, the company showed enough improvement to book a profit this year, after losing money last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you want to do dive deeper into King Wan, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 3 warning signs for King Wan you should know about.

This note has only looked at a single factor that sheds light on the nature of King Wan'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. 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.