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.
Speculative Balance Sheet
We highlight companies that use their balance sheets to speculate in risky non-core assets. While this might enhance overall returns in the short term, it almost inevitably blows up in the longer term. For example, in the run up to the Asian financial crisis, companies in Southeast Asia would take out US dollar loans, which cost around 5% per annum, and place the proceeds on deposit with finance companies, often yielding 10%. Unfortunately, when currencies devalued against the US dollar, companies lost money on both sides of the balance sheet. Forex losses wiped out shareholders’ equity while finance companies became insolvent and companies could not withdraw their deposits. For more on companies with speculative balance sheet, please read our report: SPECULATIVE BALANCE SHEETS: Borrowing to Bet (5 Nov 2015).
As such, we highlight companies which have investment securities on their balance sheet and where returns on cash and cash equivalents are unusually high.