Monday 14 September 2015

Asian Financial Statement Analysis

Excellent book by ChinHwee Tan and Thomas R Robinson, highly recommended for all readers who like to dive in company accounts, searching for possible red flags.

The book is dedicated entirely on the situation in Asia, the following cases are handled:

  • Satyam Computer Services Limited
  • Olympus Corporation
  • Longtop Financial
  • Sino-Forest
  • Oriental Century
  • RINO International Corp
  • Oceanus
  • Harbin Electric
  • West China Cement
  • China Biotics
  • Renhe Commercial Holdings
  • Duoyuan Global Water
  • Winsway Coking Coal Holdings
  • China Valves Tech
  • Puda Coal
  • Sino-Environment Technology Group Ltd
  • Celltrion Inc
  • Real Gold Mining
  • Fibrechem Technologies

Winsway Coking Coal is interesting, the authors write: "highly unlikely that the company is a fraud". The business model is not transparent and there are many RPTs, but that doesn't automatically mean something is very much wrong, as was alleged by a research report.

A recipe is given for detecting cooked books:
  • Overstated Earnings or Misclassified Components of the Income Statement
  • Overstated Financial Position
  • Managed Earnings
  • Overstated Operating Cash Flow
  • Evaluating Governance, Auditor, and Related-Party Issues

The only pity is that the huge majority of the above cases are China related.

For those people that follow the China listed companies on Bursa or SGX, there will be many familiar red flags.

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