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.
Profit/Loss from Affiliates/Operating Income (%)
We penalise companies where investments in affiliates (associates, affiliates and joint ventures) account for a large portion of shareholders’ equity. Around half of all companies have investments in affiliates although these are typically small, equating to just 3% of equity. In general, property companies have higher exposure to affiliates than other sectors, presumably to reflect collaboration on large projects.
Under our accounting screen a red flag is triggered when affiliates/equity exceed the 80th percentile relative to global peers (13% of equity). A red flag is also triggered when affiliates/equity increase at an unusually large rate over 1 and 3 years. Again, this is when the increase exceeds the 80th percentile relative to global peers.
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