We penalise companies with a high level of investment repayments relative to sales. Investments are calculated as long term investments and receivables, investments under equity method, and short term investments. Around 37% of all companies listed investment repayments of some sort, and their median average repayment equates to less than 1% of sales, although this various considerably by industry.Our accounting screen is set to trigger a red flag when decreases in investments relative to sales are in the highest 80th percentile relative to GICS industry peers (i.e. repayments are very high). A high level of investment repayments can suggest that a company is trying to hide speculation in non-core assets, such as the stock market or wealth management products, by repaying them just prior to the period end. Investment repayments should also be measured relative to outstanding investments to gauge an idea of whether a company is window dressing its financials. One of the appendices in our accounting screen combines these red flags to give a better idea of whether a company is window dressing tis financials.
Other Investing Activities/Sales (%)
We penalise companies with a high level of Other Investment Activities relative to sales. These include any investing activity not already included as a portion of Disposal of Fixed Assets, Capital Expenditures, Decrease in Investments, and Increase in Investments. Close to 85% of all companies report some form of Other Investing Activity which typically comes in at around 1.5% of sales.
Our accounting screen is set to trigger a red flag when Other Investing Activities relative to sales are in the highest 80th percentile relative to GICS industry peers (i.e. they are very high). A high level of Other Investment Activities can be indicative of companies either window dressing their financials or with highly speculative balance sheets.