The latest results from Neo Technical System Co., Ltd. (KOSDAQ:085910) were solid, but the stock didn’t move as much as expected. However, the statutory earnings number doesn’t tell the whole story, and we’ve found some factors that could be of concern to shareholders.
Check out our latest analysis for Neo Technical System
An unusual tax situation
We can see that Neo Technical System received a tax benefit of ₩1.9 billion. This is of course a bit unusual since it is more common for companies to pay taxes than receive tax benefits! Receiving a tax benefit is of course a good thing in itself. And given that the company lost money last year, it seems possible that the benefit is evidence that it now expects to recoup its previous tax losses. However, our data shows that tax benefits can temporarily boost statutory profit in the year they are recorded, but can decline again afterwards. Assuming the tax benefit is not repeated every year, the company’s profitability could drop noticeably if everything else remains the same.
Note: We always recommend investors to check balance sheet strength. Click here to access our balance sheet analysis of Neo Technical System.
Our assessment of Neo Technical System’s earnings performance
Neo Technical System received a tax benefit in its last reporting period, as we mentioned earlier. Taxes are usually an expense, not a benefit, so we don’t think the reported profit number is a particularly good indicator of the company’s earnings potential. For this reason, we believe Neo Technical System’s statutory profits may be a poor indicator of its underlying earnings power, and may give investors an overly positive impression of the company. On the positive side, the company has shown enough improvement to post a profit this year after losing money last year. The goal of this article was to assess how well we can rely on statutory profits to reflect the company’s potential, but there’s a lot more to consider, so if you want to dive deeper into this stock, it’s important to consider all the risks it faces. For example, we’ve identified: 3 warning signs for Neo Technical System (1 is significant) You should be familiar with.
Today we’ve focused on a single data point to better understand the nature of Neo Technical System’s profits. But there’s always more to discover if you’re able to focus on the small details. For example, many people consider a high return on equity to indicate a favorable business situation, while others like to “follow the money” and look for stocks that insiders are buying. You might want to check it out here. free Collection of companies with high return on equity or this list of stocks with high insider ownership.
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This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.
