Every single day in Marcellus we tell our clients that at least 80% of Indian companies have suspect accounts. Further, as we have explained in this blog – https://marcellus.in/blogs/
In this context, it looks highly likely that the Corona driven liquidity crunch around the world will lead to more accounting frauds coming to light: “Some dirty secrets are beginning to come out. Take Luckin Co!ee, which had expanded to take on Starbucks in China, attracting big-name investors like Blackrock and Singapore’s sovereign wealth fund. On April 2nd the Nasdaq listed Chinese chain announced an ongoing internal probe amid allegations that its chief operating officer and other employees may have fabricated over 2bn yuan ($280m) in sales. On April 14th Citron Research, a short-seller, accused GSX, a Chinese online-tutoring firm listed in New York, of inflating last year’s sales. In a statement GSX denied the allegations and said Citron’s report was misleading and “full of subjective maliciousness”.”
In fact there is good reason to believe that accounting blow-ups in the wake of Covid could be amongst the most spectacular ever: “Non-GAAP adjustments have spread like wildfire through corporate accounts, making it harder to discern what numbers reflect a firm’s true financial position. The average number of non-GAAP measures used in filings by companies in the S&P 500 index has increased from 2.5 to 7.5 in the past 20 years, according to PwC, a consultancy. In credit agreements analysed by Zion Research Group, the definition of EBITDA ranges from 75 words to over 2,200.”
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Note: the above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India as a provider of Portfolio Management Services. Marcellus Investment Managers is also regulated in the United States as an Investment Advisor.
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