Research

REVENUE RECOGNITION

Country Garden boasted that revenues were up 36% in 1H17 but neglected to tell investors that this was primarily due to an accounting change. The introduction of IFRS 15 in 2018 will result in major changes to how revenue is recognised and investors need to know which sectors and companies could be most affected. They also need to be aware that the transition could distort comparisons with prior periods. A small number of companies have implemented the standard early or quantified the impact on their financials. Not all companies will be revising up profits, other companies have experienced large profit…
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Insights

SCANNING FOR TROUBLE

Excess capital screen

Gillem Tulloch · 18 January 2018

You can now download our Excel-based, Bloomberg-linked screen that identifies companies globally that have been raising too much external capital relative to their requirements. This could mean that they are about to make a large acquisition, or that reported cash flows are not real and that external finance is being raised in order to survive. We discussed this in detail in our recent report, EXCESS NEW EQUITY: Fraud or poor corporate governance (12 Jan 2018). The model is set up to allow users to check individual stocks in detail, paste in a selection of companies or to hunt for stocks…
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EXCESS NEW EQUITY

Fraud or poor corporate governance?

Gillem Tulloch · 12 January 2018

It is widely assumed that companies returning capital to shareholders while reporting free cash inflows cannot be frauds, but this is not entirely true. Around 30% of past fake cash flow frauds were able to pay dividends despite reporting fraudulent free cash inflows. These dividends were likely financed from the proceeds of debt or equity. In order to spot companies with similar traits, we have created an abbreviated cash flow which monitors cash requirements, and devised a number of screens which highlight companies raising equity despite being net cash positive and generating free cash inflows. Companies where we have significant…
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IN BRIEF: THE HOLIDAY SEASON

Hiding bad news?

Gillem Tulloch · 4 January 2018

December was a busy month for HK-listed companies with 22 auditor resignations, 23 companies losing a CEO and/or CFO, plus 35 profit alerts. It’s tempting to believe that companies rush out bad news when investors are away on holiday, but the numbers don’t support this. Some of the most interesting developments included KPMG’s resignation from CogoBuy which adds credibility to short-seller fraud allegations. Also, Chinese dairy companies were again in the spotlight for all the wrong reasons with senior departures from China Shengmu following possible fraud, and some curious developments at Zhuangyuan Pasture. However, it was Anta Sports where the…
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