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Great World Company Holdings' (HKG:8003) Shareholders May Want To Dig Deeper Than Statutory Profit

Simply Wall St · 1d ago

Following the solid earnings report from Great World Company Holdings Ltd (HKG:8003), the market responded by bidding up the stock price. However, we think that shareholders should be cautious as we found some worrying factors underlying the profit.

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earnings-and-revenue-history
SEHK:8003 Earnings and Revenue History December 4th 2025

A Closer Look At Great World Company Holdings' Earnings

As finance nerds would already know, the accrual ratio from cashflow is a key measure for assessing how well a company's free cash flow (FCF) matches its profit. The accrual ratio subtracts the FCF from the profit for a given period, and divides the result by the average operating assets of the company over that time. You could think of the accrual ratio from cashflow as the 'non-FCF profit ratio'.

Therefore, it's actually considered a good thing when a company has a negative accrual ratio, but a bad thing if its accrual ratio is positive. That is not intended to imply we should worry about a positive accrual ratio, but it's worth noting where the accrual ratio is rather high. Notably, there is some academic evidence that suggests that a high accrual ratio is a bad sign for near-term profits, generally speaking.

For the year to September 2025, Great World Company Holdings had an accrual ratio of -0.13. That implies it has good cash conversion, and implies that its free cash flow solidly exceeded its profit last year. In fact, it had free cash flow of HK$37m in the last year, which was a lot more than its statutory profit of HK$31.4m. Given that Great World Company Holdings had negative free cash flow in the prior corresponding period, the trailing twelve month resul of HK$37m would seem to be a step in the right direction. Having said that, there is more to the story. We can see that unusual items have impacted its statutory profit, and therefore the accrual ratio.

See our latest analysis for Great World Company Holdings

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Great World Company Holdings.

How Do Unusual Items Influence Profit?

Surprisingly, given Great World Company Holdings' accrual ratio implied strong cash conversion, its paper profit was actually boosted by HK$32m in unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. We can see that Great World Company Holdings' positive unusual items were quite significant relative to its profit in the year to September 2025. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On Great World Company Holdings' Profit Performance

In conclusion, Great World Company Holdings' accrual ratio suggests its statutory earnings are of good quality, but on the other hand the profits were boosted by unusual items. Having considered these factors, we don't think Great World Company Holdings' statutory profits give an overly harsh view of the business. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Case in point: We've spotted 2 warning signs for Great World Company Holdings you should be mindful of and 1 of these is a bit concerning.

In this article we've looked at a number of factors that can impair the utility of profit numbers, as a guide to a business. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.