Accounting Ratios
GMT Research is an accounting research firm which develops proprietary methodologies to detect financial anomalies, or traits similar to past accounting shenanigans, at publicly listed companies. It is based in Hong Kong, focused on Asia and regulated by Hong Kong’s Securities and Futures Commission. The firm advises investment institutions around the world. For more information please visit our Terms of Use or About Us pages.
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.