Accounting Ratios

Extraordinary Items/Operating Income (%)

We penalise companies where extraordinary items are a material contributor to operating profits. Extraordinary items are primarily comprised of discontinued operations and accounting changes. Often, these are used to boost profits and/or equity. As such, they merit further investigation.

Only 8% of companies in our sample of 16,000 reported extraordinary items between 2010 and 2015. These accounted for a median average 6% of operating profit. In other words, they tend not to be overly material. REITS tend to have the highest incidence of extraordinary items with 31% reporting items between 2010 and 2015, as shown in Figure 79. These tend to be relatively materiel, typically accounting for 11% of operating profit, as shown in Figure 80. For some reason, Singaporean companies are most likely to report some form of extraordinary item, at 19% of all companies between 2010 and 2015, followed by Hong Kong and Canada.

Our accounting screen is set to trigger a red flag when a company reports an extraordinary item in its latest financials period.