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Must-Have Financial Case Study Examples with Samples and Templates

Mayuri Gangwal

Case studies are valuable tools for understanding the real-world applications of financial concepts and strategies. They provide insights into practical scenarios, showcasing the decision-making processes and outcomes in various financial situations. Whether you are a student, professional, entrepreneur, having access to well-crafted financial case study templates can be immensely beneficial in developing a deeper understanding of financial principles and honing your analytical skills.

SlideTeam’s premium PPT templates help you grasp complex financial concepts like investment analysis, financial planning, risk management, etc. Each case study offers a unique scenario, presenting a problem or challenge that requires thoughtful analysis and strategic decision-making.

By using these content-ready slides, you can enhance your problem-solving abilities, learn from real-world success stories and mistakes, and gain valuable insights into the intricacies of financial decision-making. The included samples and templates are practical tools for structuring your case studies, enabling you to apply your knowledge and skills to different financial scenarios.

Whether preparing for exams, a professional seeking to broaden your financial expertise, or an entrepreneur looking to make informed business decisions, these financial case study examples, samples, and templates are indispensable resources to elevate your financial understanding and make well-informed decisions in your personal or professional life.

Financial Case Study Templates

Template 1: financial case study environment business solution problems.

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Template 2:  Case Study for Financial Management PowerPoint Template

Introducing our captivating case study template designed to provide an environment conducive to productive discussions and effective decision-making. This template is perfect for showcasing real-life examples and analyzing financial management scenarios visually engagingly.

With its three-stage process, this template simplifies complex concepts and guides your audience through the essential components of a comprehensive business case study. It enables you to present your findings, solutions, and recommendations.

Whether you are analyzing past financial performances, identifying challenges , or proposing solutions, this template provides a flexible framework for organizing and presenting your ideas. You can also elevate your financial management presentations with our marketing Case Study for Financial Management PowerPoint Template . Download it now and unlock a wealth of possibilities to engage your audience, foster integration, and showcase your expertise in financial management.

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Conclusion 

Financial case studies are invaluable tools for understanding real-world financial scenarios and developing practical solutions. By examining concrete examples, individuals and organizations can gain insights into financial challenges, apply analytical techniques, and make informed decisions. 

This article has highlighted the importance of collecting financial case study examples and accompanying samples and templates as valuable resources for learning and applying financial principles in various contexts. These resources can serve as guides for conducting comprehensive analyses, formulating recommendations, and ultimately achieving financial success.

FAQs on Financial Case Study

What is a case study in finance.

A case study in finance is an in-depth analysis of a specific financial situation, company, investment, or financial strategy. It involves examining real-world scenarios, often based on actual events, to understand and evaluate the financial implications, decision-making processes, and outcomes.

In finance, case studies are commonly used as a teaching and learning tool to assess and explore complex financial issues in academic and professional settings. They provide a practical approach to understanding financial theories, concepts, and practices by applying them to real-life situations.

A finance case study typically involves the following elements:

• Background: The case study begins by presenting relevant information about the company, industry, or financial situation under examination. This includes details about the organization's financial statements, market conditions, competitive landscape, and other pertinent background information.
• Problem or Challenge: The case study outlines the specific financial problem or challenge that needs to be addressed. This could be related to financial analysis, investment decisions, capital budgeting, risk management, financial restructuring, or any other financial aspect of the organization.
• Data Analysis: The case study analyzes financial data, such as income statements, balance sheets, cash flow statements, and key financial ratios. Various financial analysis tools and techniques, such as ratio analysis, discounted cash flow analysis, or valuation models, may be used to evaluate the situation.
• Alternatives and Solutions: Based on the analysis, different alternatives or solutions are identified to address the financial problem or challenge. These could include recommendations for financial strategies, investment decisions, capital allocation, cost reduction measures, or other relevant actions.
• Decision-Making and Implementation: The case study explores the decision-making process, considering risk, return, financial feasibility, and strategic considerations. It also discusses the potential implementation of the recommended solution and the expected outcomes.
• Lessons Learned: The case study concludes by discussing the lessons learned from the financial situation or decision-making process. This may involve reflections on successful strategies, potential pitfalls, and broader implications for financial management and decision-making in similar contexts.

How do you write a financial case study?

Writing a financial case study involves analyzing a real or hypothetical financial situation or problem and presenting a detailed examination of the facts, analysis, and potential solutions. Here is a step-by-step guide on how to write a financial case study:

• Identify the purpose and scope: Clearly define the purpose of the case study and the specific financial issue you want to address. Determine the scope of the study, including the period, entities involved, and relevant financial data.
• Gather information: Collect all relevant financial data and supporting documents related to the case. This may include financial statements, transaction records, market data, industry reports, and any other information necessary for the analysis.
• Describe the background: Provide an overview of the company or individual involved in the case study. Include relevant details such as the company's history, industry , size, key stakeholders, and any recent events or developments that may have a financial impact.
• State the problem or objective: Clearly define the financial problem or objective that needs to be addressed. Identify the key challenges or issues the company or individual faces and explain why they are essential.
• Conduct financial analysis: Analyze the financial data and apply appropriate financial analysis techniques to evaluate the situation. This may involve calculating financial ratios, conducting trend analysis, performing a discounted cash flow analysis, or any other relevant method to gain insights into the financial performance and position of the entity.
• Present findings: Summarize the results of the financial analysis clearly and concisely. Highlight key findings, trends, and any significant financial situation factors. Use graphs, charts, or tables to present data effectively.
• Discuss alternative solutions: Propose different options or strategies to address the financial problem or achieve the objective. Determine the advantages and drawbacks of each solution and provide supporting evidence or calculations to justify your recommendations.
• Make recommendations: Make clear and actionable recommendations based on analyzing and evaluating the alternative solutions. Support your recommendations with logical reasoning and explain how they can improve the financial situation or achieve the desired outcome.
• Provide a conclusion: Summarize the main points of the case study and restate the recommendations. Highlight any potential risks or challenges associated with implementing the proposed solutions.
• Include references and citations: If you have used external sources or references, provide proper citations to give credit to the authors and avoid duplicity or redundancy.
• Edit and proofread: Review the case study for clarity, coherence, and accuracy. Check for any grammatical or spelling errors. Ensure that the document is well-structured and easy to understand.

What is finance study?

Finance study refers to the field of knowledge and an academic discipline that focuses on managing, creating, and allocating financial resources. It involves studying various aspects of financial systems, instruments, markets, and institutions. Finance encompasses the theory and practice of managing money, investments, and financial decision-making.

The study of finance covers a wide range of topics, including:

• Corporate Finance: This area focuses on financial decisions and strategies within corporations. It includes capital budgeting, investment analysis, financial planning, risk management, and corporate valuation.
• Investments: This field examines allocating money to different financial assets including, stocks, mutual funds, real estate, and other derivatives. It involves analyzing risk and return, portfolio management, asset pricing models, and investment strategies.
• Financial Institutions and Markets: This area explores the functioning of financial institutions (such as banks, insurance companies, and investment firms) and financial markets (such as stock markets, bond markets, and foreign exchange markets). It involves studying the role of these institutions and markets in facilitating the flow of funds, managing risks, and pricing financial assets.
• International Finance: This branch focuses on financial transactions and relationships between countries and across borders. It covers foreign exchange rates, international investment, multinational corporations, and global financial markets.
• Personal Finance: This area focuses on individual or household financial management. It involves budgeting, saving, investing, retirement planning, taxation, and managing personal debt.

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Financial Statements Examples – Amazon Case Study

Financial Statements are informational records detailing a company’s business activities over a period.

Austin has been working with Ernst & Young for over four years, starting as a senior consultant before being promoted to a manager. At EY, he focuses on strategy, process and operations improvement, and business transformation consulting services focused on health provider, payer, and public health organizations. Austin specializes in the health industry but supports clients across multiple industries.

Austin has a Bachelor of Science in Engineering and a Masters of Business Administration in Strategy, Management and Organization, both from the University of Michigan.

• What Are Financial Statements?

Amazon’s Balance Sheet

Amazon’s income statement, amazon’s cash flow statement, usage of financial statements, amazon case study faqs, what are financial statements.

Investors need financial statements to gain a full understanding of how a company operates in relation to competitors. In the case of Amazon , profitability metrics used to analyze most businesses cannot be used to compare the company to businesses in the same sector.

Amazon remains low in profitability continuously to reinvest in growing operations and new business opportunities. Instead, investors can point to the metrics signified in Amazon’s cash flow statement to demonstrate growth in revenue generation over the long term.

There are three main types of financial statements, all of which provide a current or potential investor with a different viewpoint of a company’s financials. These include the following below. 

Balance Sheet

The balance sheet represents a company’s total assets, liabilities, and shareholder ’s equity at a certain time. 

Assets are all items owned by a company with tangible or intangible value, while liabilities are all debts a company must repay in the future.

Shareholders' equity is simply calculated by subtracting total assets from total liabilities. This represents the book value of a business.

Income Statement

The income statement represents a company’s total generated income minus expenses over a specified range of time. This can be 3 months in a quarterly report or a year in an annual report . 

Revenue includes the total money a company makes over a set time. 

This includes operating revenue from business activities and non-operating revenue, such as interest from a company bank account.

Expenses include the total amount of money spent by a company over time. These can be grouped into two separate categories, Primary expenses occur from generating revenue, and secondary expenses appear from debt financing and selling off held assets.

Cash Flow Statement

The cash flow statement represents a company’s total cash inflows and outflows over a specified time range, similar to the income statement. Cash in a business can come from operating, investing, or financing activities. 

Operating activities are events in which the business produces or spends money to sell its products or services. This would be income from the sales of goods or services or interest payments and expenses such as wages and rent payments for company facilities.

Investing activities include selling or purchasing assets, which can include investing in business equipment or purchasing short-term securities. Financing activities include the payment of loans and the issuance of dividends or stock repurchases.

Key Takeaways

• Financial statements have information relevant for investors to understand the operations and profitability of a business over a specified time.
• Fundamental analysis typically focuses on the main three financial statements: the balance sheet, income statement, and cash flow statement.
• Although analyzing business financials can provide an unaltered outlook into the operations of a business, the numbers don’t always demonstrate the full story, and investors should always conduct thorough due diligence beyond pure statistics.
• Investors must ensure all of a company's financial statements are analyzed before forming a thesis, as inconsistencies in one sheet may be caused by an unusual one-time expense or dictated by a global measure out of the company’s control (ex., COVID-19).

Now that we have a general understanding of the financial statements, we can begin to take a look at Amazon’s most recent quarterly filing. 

Company filings can be found by using EDGAR (database of regulatory filings for investors by the SEC) or from Amazon’s investor relations website.

Before we begin analyzing this sheet, it is important to take note of the statement just below the title, indicating that the data is being displayed in millions. 

This can throw off newcomers, who may be very confused upon seeing Amazon’s revenue is $53,888. Amazon’s quarterly revenue is indeed $53.8 billion as calculated in millions.

When looking at Amazon’s assets, it is important to note the difference between current and total assets. Current assets are categorized separately due to the expectation that they can be converted to cash within the fiscal year.

Current assets can be used in the current ratio to analyze Amazon’s ability to pay off its short-term obligations. The current ratio formula is:

Current Ratio = Current Assets / Current Liabilities

Amazon’s current ratio sits at 0.92, which is below the e-commerce industry average of 2.09 as of March 2023 (Source: Macrotrends ).

This could mean that Amazon is potentially overvalued compared to competitors, but this is only one metric and should ultimately be all of an investment decision, especially considering the capital-intensive nature of Amazon’s business model.

It is also important to understand all of the vocabulary used to detail items in Amazon’s balance sheet. Some of the major items’ definitions can be found below:

Assets are classified as follows.

• Cash and cash equivalents: Assets of high liquidity, such as certificates of deposit or treasury bonds.
• Marketable securities: Liquid securities can be sold in the public market, such as stock in another company or corporate bonds.
• Accounts receivable (A/R): Money owed to the company that has not been received yet, such as from items previously bought on credit.
• Inventories: Unsold finished or unfinished products from a company that has yet to be sold.
• Property and equipment (PP&E): Assets owned by a company that is used for business activities. It may include factory assets or other types of real estate.
• Operating leases: Assets rented by a business for operational purposes. Calculated as the net present value on the balance sheet.
• Goodwill: Calculates intangible assets that cannot be sold or directly measured, such as customer reputation and loyalty.

Liabilities are of the following types.

• Accounts payable (A/P): Obligations accrued through business activities that must be paid off shortly.
• Accrued expenses: Current liabilities for a business that must be paid in the next 12 months.
• Unearned revenue: This represents revenue earned by a business that has not yet received. Prevents profits from being overstated for a specific period.
• Long-term debt: Debts in which payments are required over 12 months.
• Lease liabilities: Payment obligations of a lease taken out by a company.
• Stockholders’ equity: Net worth of a business/asset value to shareholders.
• Retained earnings: Net profit remaining for a company after all liabilities are paid.

Amazon’s next statement in its quarterly filing is the income statement. The income statement is useful for comparing a company’s growth over time and matching it up against competitors in the same or different sectors.

An essential factor to note when looking at a company’s income statement is whether its revenue and net income are consistently growing year over year. Investors should also be aware of Wall Street expectations, as they can heavily influence the business’s share price.

Many important ratios are used when analyzing a company’s income statement. Some of the most notable ones include:

• EV/EBITDA = (Market Capitalization + Debt - Cash) / (Revenue - Cost of Goods Sold - Operating Expenses)
• Gross Margin =  (Revenue - Cost of Goods Sold) / Revenue
• Operating Margin = Operating Income / Revenue
• Net Margin = Net Income / Revenue
• Return on Equity (ROE) = Net Income / Average Shareholder Equity (End Value + Beginning Value / 2)
• Earnings Per Share = Net Income / Shares Outstanding

Let’s use these ratios to conduct a comparables analysis between Amazon and eBay, a company at a much lower valuation relative to the e-commerce giant.  Here are their ratios side-by-side, as of Amazon’s Q1 2023 and eBay’s Q1 2023 filings:

* = EV/EBITDA ratios sourced from finbox.com , March 2023 trailing twelve months (TTM)

Looking at these statistics on paper, it is clear to see that Amazon seems overvalued compared to eBay due to lower margins, negative earnings per share, and an EV/EBITDA multiple over three times as high as the business. 

However, pure stats on an income statement cannot fully justify purchasing one company or another. The statement merely shows what a company is doing without a corporate spin.

One thing to note that is unique about Amazon’s business model is how the company invests huge amounts of capital into R&D and technology to expand its operations continuously.

Their numbers don’t account for the massive cash flows and growth opportunities that the business takes advantage of.

When conducting fundamental analysis, an investor must consider all aspects of a business beyond the financial statements, including comparing business models to competitors and setting benchmarks encompassing the overall sector.

Amazon’s cash flow statement is where the company begins to shine compared to its competitors in the online commerce sector. The company has consistently increased cash flow from operating activities and constantly returns value to shareholders in the form of capital appreciation.

It is notable for focusing on what the company is doing inside of its cash flow statements to get a better picture of why its income or stock price is trending a certain way. 

For example, an explosive drop in net income in an otherwise stable company could be due to mismanagement or hampered growth but is most likely due to M&A activity charged in a quarter that may be skewing the numbers. The cash flow statement clears this up.

Compared to 2022, Amazon has increased its annual cash from operating activities by over 38% from the previous year based on a 12-month rolling basis.

This increase has also resulted in an 11.7% increase in investment expenditures, which should allow Amazon to continue growing faster than similar companies.

In comparison, according to eBay’s most recent 10-K filing , the company generated an 82% growth in operating cash flow (OCF), however, this stat can be very misleading due to the company’s lack of investment in processes such as R&D and SG&A.

In 2022, the company reported $92M in investing activities, representing only 26% of operating cash flows. Amazon reported over $37.6B in investing activities representing approximately 88% of its OCF.

The income statement can misrepresent how well a company is doing, as while eBay has a higher net income, Amazon strategically reinvests its cash flows into R&D and other expenses to produce more over time continuously. 

What makes the cash flow statement so essential to fundamental analysis is the fact that it is tough to manipulate its numbers through financial engineering or clever accounting. 

The statement purely shows precisely where all of the money a company makes is being used. Many investors use the cash flow statement to tell the true financial health of a business, as profits can often not be indicative of a growth company's value.

The stock price of a company can easily be swayed by sentiment or the market cycle , and the income statement can be skewed through large one-time transactions or large amounts of financed revenue. The amount of money in the possession of a company is very hard to adjust.

Amazon currently has much better growth prospects than eBay and thus sells at a higher premium in the open market , but you wouldn’t understand why unless you took in the full picture of the company.

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Financial statements are excellent tools to learn more about a business in terms of an overall market or sector of operation. Using financial statements to determine the current value of a business is essential for understanding a company’s stock price.

Along with the ratios mentioned, analysts often form their methodologies over time to focus on companies that are strong in specific financial circumstances. 

Tools such as stock screeners can sort millions of companies by certain factors. For instance, some investors may seek defensive companies with consistent dividend growth over long periods, while others may seek growth companies with the most innovative new technology.

Investors should keep all of this information in mind, as well as pay attention to the reports of analysts with varied performance outlooks. It is essential to seek out the opinions of multiple sources before establishing an opinion on a business.

Looking at reports from analysts specializing in the industry can also ensure that your expectations are reasonable compared to industry experts. 

If your thesis results in Amazon growing its revenues by 20% a year while analysts across the country are only expecting growth in the range of 5-7%, it could be a sign that you may have overlooked a key factor in your due diligence .

The overall goal of using financial statements is to fully understand the company you are investing in to justify a position. Although your views may slightly differ from experts, quality due diligence can result in somewhat varied outcomes based on an investor’s outlook for the future.

Using EBITDA instead of net income strips away the capital structure and taxation of a business to analyze the pure earnings potential of a business. This is more practical for investors to see the general trajectory of a company’s income over time.

For example, companies may decide on completing a merger or acquiring another company. This will require a company to report its current and acquired assets on its balance sheet .

Over time, these assets must be recorded as expenses through the use of depreciation, which is the process of deducting from gross revenue to account for the decreasing value of company plant assets. 

If these assets increase in value over time, this could decrease revenues over time not due to company performance but because of increased prices for equipment outside of the company’s control. 

Without looking at EBITDA, company financials may paint a completely different picture with the use of net income that may or may not be justified at all.

ROE is an important metric to distinguish how good a company is at generating profits with investor capital compared to its share price and competitors. It is yet another indicator used to analyze the trajectory of a business over time. 

Using ROE can also demonstrate how much financing a company requires to generate its revenue and if investors are really getting a great return for the amount of money shareholders contribute. 

A startup that has recently gone public on the stock exchange may have a very low to negative ROE compared to an established company. Still, the startup may have the margins and growth to justify its valuation . 

Much like every financial ratio, ROE doesn’t demonstrate the entire story of a business, and the full picture of a business must be considered to decide on an equity investment.

To proliferate and take market share from competitors , Amazon undercuts prices on many products to decrease competition and remain the top player in the industry.

Amazon, like many other companies recently since the pandemic, has also faced significant increases in operating expenses , thus lowering operating and net margins in the short term. Once Amazon begins to slow expansion, these margins are expected to rise.

Amazon’s net income is very low for many of the same reasons. The company is profitable yet is constantly reinvesting into new businesses and products to further grow cash flows for future expenditures.

Amazon investors are not focused on income but rather on its ability to continuously grow in the long term. Growth companies like Amazon do not issue dividends because they believe that the money is better reinvested in business operations.

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10 Financial Analytics Case Studies [2024]

Financial analytics merges the precision of data science with the strategic depth of financial theory, creating an indispensable toolkit for navigating the complexities of the modern business landscape. This field utilizes sophisticated data analysis techniques alongside financial insights to bolster strategic decision-making, enhance financial performance, and influence policy formulation. Its broad applicability spans a multitude of activities, including advanced risk management practices, nuanced investment analysis, and the optimization of financial strategies, playing a pivotal role in guiding companies through the intricacies of the financial markets.

The discussion presents ten illustrative case studies that spotlight the significant impact of financial analytics across various industries. These examples reveal how entities ranging from burgeoning startups to established corporate giants have leveraged analytical methodologies to address pressing challenges, capitalize on emerging opportunities, and propel their strategic goals. Through this exploration, we aim to shed light on the practical deployment of financial analytics, underscoring its potential to not only resolve complex dilemmas but also to drive innovation, streamline operations, and foster sustainable growth. Through the lens of these narratives, financial analytics is revealed as a cornerstone of competitive advantage and organizational resilience, demonstrating its critical role in enabling businesses to maneuver adeptly through the evolving financial terrain.

10 Financial Analytics Case Studies

1. risk management in banking sector: jpmorgan chase & co..

JPMorgan Chase & Co. has harnessed the power of big data analytics and machine learning to revolutionize its approach to risk management. The bank’s use of advanced algorithms enables the analysis of vast datasets, identifying subtle patterns of fraudulent activities and potential credit risk that would be impossible for human analysts to detect. This capability is powered by AI technologies that learn from data over time, improving their predictive accuracy with each transaction analyzed.

Furthermore, JPMorgan employs predictive analytics to forecast future financial risks, allowing for preemptive measures to be taken. The bank has also developed sophisticated simulation models that can assess the potential impact of various market scenarios on its portfolio, enhancing its stress testing processes. These technological advancements have not only bolstered the bank’s resilience against financial uncertainties but have also led to a more dynamic and responsive risk management strategy. The adoption of these technologies has yielded significant benefits, including reduced operational costs, minimized losses from fraud, and an overall improvement in financial health and stability.

Related: How Can AI Be Used in Financial Analytics?

2. Portfolio Optimization for an Investment Firm: BlackRock

BlackRock’s proprietary platform, Aladdin, stands as a testament to the integration of cutting-edge technology in financial analytics for portfolio management. Aladdin’s comprehensive suite combines risk analytics, portfolio management, and trading tools into a single platform. This integration allows for real-time analysis and optimization of investment portfolios. The platform employs quantitative models that leverage historical and current market data to simulate various investment strategies, assessing their potential risks and returns.

Moreover, Aladdin utilizes machine learning to refine its predictive capabilities, enabling more accurate forecasting of market movements and asset performance. This allows BlackRock to tailor investment portfolios that are closely aligned with the client’s risk tolerance and financial goals, achieving optimal risk-adjusted returns. The use of such sophisticated analytics tools has empowered BlackRock to navigate complex markets more effectively, ensuring strategic asset allocation and informed decision-making. Clients benefit from enhanced portfolio performance, greater transparency in investment processes, and improved risk management.

3. Revenue Forecasting for a Retail Chain: Walmart

Walmart’s approach to revenue forecasting exemplifies the strategic use of data analytics and machine learning in retail. By analyzing a diverse array of data sources, including sales records, customer demographics, and buying patterns, Walmart applies sophisticated forecasting models that incorporate seasonal trends, promotional impacts, and economic indicators. This analytical rigor enables Walmart to make accurate predictions about future sales trends, which is essential for inventory management and marketing strategy formulation.

The retail giant’s investment in machine learning technologies further refines its forecasting models, allowing for adjustments in real time based on emerging data. This dynamic approach to forecasting supports Walmart in maintaining optimal inventory levels, reducing stockouts or overstock situations, and maximizing sales opportunities. Additionally, Walmart leverages these insights to tailor marketing efforts, enhancing customer engagement and satisfaction. The integration of these advanced technologies into Walmart’s operational framework has led to significant improvements in efficiency, cost savings, and overall financial performance, setting a benchmark for the retail industry.

Related: How Can CFO Use Financial Analytics?

4. Financial Analytics in Healthcare Cost Reduction: Kaiser Permanente

Kaiser Permanente utilizes a comprehensive approach to financial analytics, integrating predictive analytics, data visualization, and advanced statistical models to scrutinize patient care data, treatment outcomes, and operational costs comprehensively. This multifaceted analysis allows Kaiser to identify inefficiencies and areas where improvements can be made without compromising the quality of patient care. For instance, by employing predictive analytics, Kaiser can forecast patient admissions and manage staffing levels more efficiently, reducing unnecessary labor costs.

Data visualization tools are beneficial for conveying intricate data insights throughout an organization, enabling informed decision-making based on data. These technologies have enabled Kaiser Permanente to implement strategic cost-saving measures, such as optimizing supply chain logistics for medical supplies and reducing readmission rates through better patient care programs. The result is a dual achievement: maintaining high standards of patient care while significantly reducing operational costs, demonstrating the power of financial analytics in balancing cost efficiency with quality healthcare delivery.

5. Enhancing Customer Loyalty through Analytics: American Express

American Express’s strategy for enhancing customer loyalty involves a sophisticated analytics infrastructure that leverages big data, machine learning, and predictive analytics. The company analyzes vast datasets encompassing spending patterns, customer feedback, and engagement levels to gain deep insights into customer behavior and preferences. Machine learning models are then employed to personalize offerings and rewards, tailoring services to individual customer needs and expectations.

This personalized approach is made possible by American Express’s investment in AI and natural language processing (NLP) technologies, which enable the company to analyze unstructured data sources, such as customer feedback on social media and review platforms. The insights derived from these analyses inform targeted marketing campaigns and loyalty programs, fostering a sense of value and recognition among customers. This strategy has proven effective in strengthening customer relationships, enhancing satisfaction, and, ultimately, driving loyalty and retention in the competitive financial services market.

Related: Will AI Replace Financial Analysts?

6. Predictive Analytics in Credit Scoring: Kabbage

Kabbage’s innovative approach to credit scoring exemplifies the transformative potential of financial analytics in fintech. By leveraging machine learning algorithms and big data analytics, Kabbage analyzes a wide array of non-traditional data sources, including online sales, banking transactions, and social media activity, to assess the creditworthiness of small businesses. This data-driven approach allows Kabbage to generate more accurate and nuanced credit profiles, especially for businesses with limited credit histories or those traditionally underserved by conventional banks.

The technology stack employed by Kabbage includes advanced machine learning models that continuously learn and adapt based on new data, improving the accuracy of credit assessments over time. Furthermore, Kabbage utilizes natural language processing to analyze textual data from social media and other digital platforms, gaining insights into the business’s customer engagement and market presence. This comprehensive and inclusive approach to credit scoring has not only enabled Kabbage to expand access to credit for small businesses but has also streamlined the application and approval process, making it faster and more user-friendly.

7. Operational Efficiency through Process Analytics: Toyota

Toyota’s implementation of the Toyota Production System (TPS) is a benchmark in manufacturing excellence, deeply integrated with real-time data analysis and financial metrics to enhance operational efficiency. The TPS, known for its principles of Just-In-Time (JIT) production and continuous improvement (Kaizen), is further empowered by financial analytics to reduce waste and optimize production flow. Toyota employs advanced data analytics tools to monitor every aspect of the production process, from inventory levels to equipment efficiency, allowing for immediate adjustments that reduce downtime and material waste.

The integration of Internet of Things (IoT) technology into Toyota’s manufacturing processes allows for the collection of real-time data from machinery and equipment, enabling predictive maintenance and reducing unplanned outages. By correlating this operational data with financial performance, Toyota can directly measure the impact of process improvements on cost savings and productivity, ensuring that its manufacturing operations are not only efficient but also cost-effective. This holistic approach to operational excellence through data analytics has kept Toyota at the forefront of the automotive industry.

Related: Role of Data Analytics in FinTech?

8. Real Estate Investment Analysis: Zillow

Zillow leverages a sophisticated combination of financial analytics, machine learning, and big data to revolutionize real estate investment analysis. The platform’s Zestimate feature employs statistical and machine learning models to analyze millions of property listings, sales data, and regional market trends, providing an accurate estimate of a home’s market value. This technology enables investors and homebuyers to identify potential investment opportunities and assess property values with a high degree of accuracy.

Beyond Zestimate, Zillow uses geospatial analysis and predictive modeling to understand local real estate trends, demographic shifts, and economic indicators that could affect property values. This comprehensive analytical approach allows Zillow to offer a suite of tools and insights that empower users to make informed decisions in the real estate market. For investors, this means the ability to quickly identify undervalued properties, predict future market movements, and optimize investment portfolios according to changing market conditions.

9. Strategic Planning for a Tech Giant: Google

Google’s strategic planning and decision-making processes are deeply rooted in financial analytics, leveraging the company’s vast data resources and AI capabilities. Google uses predictive modeling and scenario analysis to forecast market trends, consumer behavior, and technological advancements. This enables the tech giant to identify emerging business opportunities, assess the viability of new products, and allocate resources effectively.

Google’s investment in cloud computing and AI technologies, such as TensorFlow for machine learning and BigQuery for data analytics, exemplifies its commitment to harnessing data for strategic advantage. These tools allow Google to process and analyze large datasets quickly, deriving insights that inform its innovation strategies and support data-driven decisions. By continuously analyzing financial metrics in conjunction with market data, Google can navigate market uncertainties, capitalize on new opportunities, and sustain its leadership in the tech industry.

Related: How to Become a Financial Analyst?

10. Enhancing Supply Chain Resilience: Procter & Gamble (P&G)

P&G’s approach to enhancing supply chain resilience is a prime example of financial analytics applied to operational challenges. The company utilizes digital twin technology, which creates a virtual model of the supply chain, enabling P&G to simulate various scenarios and predict the impact of disruptions. This predictive capability, combined with real-time analytics, allows P&G to anticipate supply chain vulnerabilities, optimize inventory management, and maintain product availability even in the face of unforeseen challenges.

P&G’s use of predictive analytics extends to demand forecasting, where machine learning models analyze sales data, market trends, and consumer behavior to predict future product demand accurately. This foresight enables the company to adjust production and distribution plans proactively, minimizing the risk of stockouts or excess inventory. The integration of these technologies into P&G’s supply chain strategy not only improves operational efficiency but also enhances the company’s ability to respond agilely to market changes, ensuring a competitive advantage in the fast-moving consumer goods industry.

These financial analytics case studies demonstrate the transformative power of financial analytics across diverse sectors, highlighting how the strategic integration of technologies such as artificial intelligence, machine learning, predictive analytics, and data visualization enables organizations to unearth valuable insights, streamline operations, and fulfill strategic objectives. As the domain of financial analytics advances, the adoption of these sophisticated technologies becomes imperative for businesses intent on navigating the intricacies of today’s financial landscape. This evolution not only fuels innovation but also secures a competitive advantage, ensuring that companies remain agile and forward-thinking in an era of unprecedented change.

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Home > Honors College > Honors Theses > 250

Honors Theses

Financial reporting: a case study analysis.

Darby Mills , University of Mississippi. Sally McDonnell Barksdale Honors College

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Undergraduate Thesis

Accountancy

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Victoria Dickinson

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Dissertation/Thesis

This paper looks at accountancy following the application of the U.S. Generally Accepted Accounting Principles (GAAP) through case study analysis. Within this paper, there are twelve case studies that cover areas of financial accounting, financial statement analysis, and research. The financial accounting cases cover several topics, such as stockholder's equity, inventory, leases, and deferred tax assets and liabilities. The financial statement analysis cases use ratios, creation of financial reports, and commentary to discuss in further detail the financial statements. The FASB Codification is used as a basis for research in many cases. Dr. Vicki Dickinson facilitated each case within this paper through the instruction of the Accountancy 420 course.

Recommended Citation

Mills, Darby, "Financial Reporting: A Case Study Analysis" (2018). Honors Theses . 250. https://egrove.olemiss.edu/hon_thesis/250

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The Beginner’s Guide to Reading & Understanding Financial Statements

• 10 Jun 2020

An ability to understand the financial health of a company is one of the most vital skills for aspiring investors, entrepreneurs, and managers to develop. Armed with this knowledge, investors can better identify promising opportunities while avoiding undue risk, and professionals of all levels can make more strategic business decisions.

Financial statements offer a window into the health of a company, which can be difficult to gauge using other means. While accountants and finance specialists are trained to read and understand these documents, many business professionals are not. The effect is an obfuscation of critical information.

If you’re new to the world of financial statements, this guide can help you read and understand the information contained in them.

Access your resource today.

Understanding Financial Statements

To understand a company’s financial position—both on its own and within its industry—you need to review and analyze several financial statements: balance sheets, income statements, cash flow statements, and annual reports. The value of these documents lies in the story they tell when reviewed together.

1. How to Read a Balance Sheet

A balance sheet conveys the “book value” of a company. It allows you to see what resources it has available and how they were financed as of a specific date. It shows its assets, liabilities, and owners’ equity (essentially, what it owes, owns, and the amount invested by shareholders).

The balance sheet also provides information that can be leveraged to compute rates of return and evaluate capital structure, using the accounting equation: Assets = Liabilities + Owners’ Equity.

Assets are anything a company owns with quantifiable value.

Liabilities refer to money a company owes to a debtor, such as outstanding payroll expenses, debt payments, rent and utility, bonds payable, and taxes.

Owners’ equity refers to the net worth of a company. It’s the amount of money that would be left if all assets were sold and all liabilities paid. This money belongs to the shareholders, who may be private owners or public investors.

Alone, the balance sheet doesn’t provide information on trends, which is why you need to examine other financial statements, including income and cash flow statements, to fully comprehend a company’s financial position.

This article will teach you more about how to read a balance sheet .

2. How to Read an Income Statement

An income statement , also known as a profit and loss (P&L) statement, summarizes the cumulative impact of revenue, gain, expense, and loss transactions for a given period. The document is often shared as part of quarterly and annual reports, and shows financial trends, business activities (revenue and expenses), and comparisons over set periods.

Income statements typically include the following information:

• Revenue: The amount of money a business takes in
• Expenses: The amount of money a business spends
• Costs of goods sold (COGS): The cost of component parts of what it takes to make whatever a business sells
• Gross profit: Total revenue less COGS
• Operating income: Gross profit less operating expenses
• Income before taxes: Operating income less non-operating expenses
• Net income: Income before taxes less taxes
• Earnings per share (EPS): Division of net income by the total number of outstanding shares
• Depreciation: The extent to which assets (for example, aging equipment) have lost value over time
• EBITDA: Earnings before interest, taxes, depreciation, and amortization

Accountants, investors, and other business professionals regularly review income statements:

• To understand how well their company is doing: Is it profitable? How much money is spent to produce a product? Is there cash to invest back into the business?
• To determine financial trends: When are costs highest? When are they lowest?

This article will teach you more about how to read an income statement .

Related: Financial Terminology: 20 Financial Terms to Know

3. How to Read a Cash Flow Statement

The purpose of a cash flow statement is to provide a detailed picture of what happened to a business’s cash during a specified duration of time, known as the accounting period. It demonstrates an organization’s ability to operate in the short and long term, based on how much cash is flowing into and out of it.

Cash flow statements are broken into three sections: Cash flow from operating activities, cash flow from investing activities, and cash flow from financing activities.

Operating activities detail cash flow that’s generated once the company delivers its regular goods or services, and includes both revenue and expenses. Investing activity is cash flow from purchasing or selling assets—usually in the form of physical property, such as real estate or vehicles, and non-physical property, like patents—using free cash, not debt. Financing activities detail cash flow from both debt and equity financing.

It’s important to note there’s a difference between cash flow and profit . While cash flow refers to the cash that's flowing into and out of a company, profit refers to what remains after all of a company’s expenses have been deducted from its revenues. Both are important numbers to know.

With a cash flow statement, you can see the types of activities that generate cash and use that information to make financial decisions .

Ideally, cash from operating income should routinely exceed net income, because a positive cash flow speaks to a company’s financial stability and ability to grow its operations. However, having positive cash flow doesn’t necessarily mean a company is profitable, which is why you also need to analyze balance sheets and income statements.

This article will teach you more about how to read a cash flow statement .

4. How to Read an Annual Report

An annual report is a publication that public corporations are required to publish annually to shareholders to describe their operational and financial conditions.

Annual reports often incorporate editorial and storytelling in the form of images, infographics, and a letter from the CEO to describe corporate activities, benchmarks, and achievements. They provide investors, shareholders, and employees with greater insight into a company’s mission and goals, compared to individual financial statements.

Beyond the editorial, an annual report summarizes financial data and includes a company's income statement, balance sheet, and cash flow statement. It also provides industry insights, management’s discussion and analysis (MD&A), accounting policies, and additional investor information.

In addition to an annual report, the US Securities and Exchange Commission (SEC) requires public companies to produce a longer, more detailed 10-K report, which informs investors of a business’s financial status before they buy or sell shares.

10-K reports are organized per SEC guidelines and include full descriptions of a company’s fiscal activity, corporate agreements, risks, opportunities, current operations, executive compensation, and market activity. You can also find detailed discussions of operations for the year, and a full analysis of the industry and marketplace.

Both an annual and 10-K report can help you understand the financial health, status, and goals of a company. While the annual report offers something of a narrative element, including management’s vision for the company, the 10-K report reinforces and expands upon that narrative with more detail.

This article will teach you more about how to read an annual report .

A Critical Skill

Reviewing and understanding these financial documents can provide you with valuable insights about a company, including:

• Its debts and ability to repay them
• Profits and/or losses for a given quarter or year
• Whether profit has increased or decreased compared to similar past accounting periods
• The level of investment required to maintain or grow the business
• Operational expenses, especially compared to the revenue generated from those expenses

Accountants, investors, shareholders, and company leadership need to be keenly aware of the financial health of an organization, but employees can also benefit from understanding balance sheets, income statements, cash flow statements, and annual reports.

If you don’t have a financial background, the good news is that there are steps you can take to learn about finance and jumpstart your career . Building your financial literacy and skills doesn’t need to be difficult.

Are you interested in gaining a toolkit for making smarter financial decisions and communicating decisions to key stakeholders? Explore our online finance and accounting courses , and download our free course flowchart to determine which best aligns with your goals. To get a jumpstart on building your financial literacy, download our free Financial Terms Cheat Sheet .

About the Author

• International Center for Finance
• ICF Case Studies

Finance Case Studies

Featured finance case studies:.

Canary Wharf: Financing and Placemaking

Fondaco dei Tedeschi: A New Luxury Shopping Destination for Venice

Nathan Cummings Foundation: Mission-Driven Investing

The Decline of Malls

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The Nathan Cummings Foundation Investment Committee and Board of Trustees had studied the decision to go “all in” on a mission-related investment approach. The Board voted 100% to support this new direction and new goals for financial investments, but many questions remained. How could NCF operationalize and integrate this new strategy? What changes would it need to make to support the investment strategies' long-term success? How could NCF measure and track its progress and success with this new strategy?

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The renovation of the Fondaco dei Tedeschi in Venice represented a grand experiment. Should an ancient building in the midst of a world heritage site be transformed into a modern mall for luxury goods? How best to achieve the transformation and make it economically sustainable? Would tourists walk to the mall? And would they buy or just look? What could each stakeholder learn from their experiences with the Fondaco dei Tedeschi?

Gardner Denver

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Asset Management, Employee/HR, Investor/Finance, Leadership & Teamwork

As KKR, a private equity firm, prepared to take Gardner-Denver, one of its portfolio companies, public in mid-2017, a discussion arose on the Gardner-Denver board about the implications of granting approximately $110 million in equity to its global employee base as part of its innovative "broad-based employee ownership program." Was the generous equity package that Pete Stavros proposed be allotted to 6,100 employees the wisest move and the right timing for Gardner Denver and its new shareholders?

Home Health Care

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Asset Management, Competitor/Strategy, Healthcare, Investor/Finance

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Suwanee Lumber Company

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Asset Management, Investor/Finance, Sustainability

In 2016, Blue Wolf, a private equity firm headquartered in New York City, confronted a number of options when it came to its lumber business. They could put their holdings in the Suwanee Lumber Company (SLC), a sawmill they had purchased in 2013, up for sale. Or they could continue to hold onto SLC and run it as a standalone business. Or they could double down on the lumber business by buying an idle mill in Arkansas to run along with SLC.

Alternative Meat Industry: How Should Beyond Meat be Valued?

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In 2009, when experienced entrepreneur Ethan Brown decided to build a better veggie burger, he set his sights on an exceptional goal – create a plant-based McDonald’s equally beloved by the American appetite. To do this, he knew he needed to transform the idea of plant-based meat alternatives from the sleepy few veggie burger options in the grocer’s freezer case into a fundamentally different product. Would further investments in research and development help give Beyond Meat an edge? Would Americans continue to embrace meat alternatives, or would the initial fanfare subside below investor expectations?

Hertz Global Holdings (A): Uses of Debt and Equity

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Asset Management, Financial Regulation, Sourcing/Managing Funds

By 2019, Hertz CEO Kathyrn Marinello and CFO Jamere Jackson had managed to streamline the venerable car rental firm's operations. Their next steps were to consider ways to fine-tune Hertz's capital structure. Would it make sense for Marinello and Jackson to lead Hertz to issue more equity to re-balance the structure? One possibility was a stock rights offering, but an established company issuing equity was not generally well-received by investors. How well would the market respond to an attempt by Hertz management to increase shareholder equity?

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Shake Shack's long lines of devoted fans made investors salivate when the company went public in 2015 and shares soared above expectations. Was the enthusiasm justified? Could the company maintain its edge in the long run?

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Norway's Pension Fund Global was the largest sovereign wealth fund in the world. With questions in 2014 on policies, ethical investment, and other concerns, what was the appropriate investment strategy for the Fund?

Factor Investing for Retirement

Jean rosenthal, jaan elias and william goetzmann.

Asset Management, Investor/Finance

Should this investor look for a portfolio of factor funds to meet his goals for his 401(k) Retirement Plan?

Bank of Ireland

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Asset Management, Financial Regulation, Investor/Finance, Leadership & Teamwork, Macroeconomics, State & Society

In August 2011, Wilbur Ross, an American investor specializing in distressed and bankrupt companies, purchased 35% of the stock of Bank of Ireland. Even for Ross, investing in an Irish bank seemed risky. Observers wondered if the investment made sense.

Commonfund ESG

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Asset Management, Investor/Finance, Metrics & Data, Social Enterprise

ESG (Environmental Social and Governance) investing had become an increasingly hot topic in the financial community. Could Commonfund offer its endowment clients some investment vehicle that would satisfy ESG concerns while producing sufficient returns?

Glory, Glory Man United!

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Manchester United might be the greatest English sports dynasty of all time. But valuation poses unique challenges. How much should a team's success on the pitch count toward its net worth?

Walmart de México: Investing in Renewable Energy

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Investor/Finance, Operations, State & Society, Sustainability

Walmart de México y Centroamérica contracted for power from EVM's wind farm, saving energy costs and improving sustainability. What should the company's next steps be to advance its goals?

Voltaire, Casanova, and 18th-Century Lotteries

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Gambling has been a part of human activity since earliest recorded history, and governments have often attempted to turn that impulse to benefit the state.  The development of lotteries in the 18th century helped to develop the study of probabilities and enabled the financial success of some of the leading figures of that era.

Alexander Hamilton and the Origin of American Finance

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Business History, Financial Regulation, Investor/Finance

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Kmart Bankruptcy

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Brandeis and the Rose Museum

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Taking EOP Private

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Asset Management, Financial Regulation, Investor/Finance, Leadership & Teamwork

With 594 properties nationwide, EOP was the nation’s largest office landlord.  Despite EOP's dominance of the REIT market, analysts had historically undervalued EOP. However, Blackstone saw something in EOP that the analysts didn’t, and in November, Blackstone offered to buy EOP for $48.50 per share. What did Blackstone and Vornado see that the market didn’t?

Subprime Lending Crisis

Jaan elias and william n. goetzmann.

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The Future of Malls: Was Decline Inevitable?

Jean rosenthal, anna williams, brandon colon, robert park, william goetzmann, jessica helfand  .

Business History, Customer/Marketing, Innovation & Design, Investor/Finance

Shopping malls became the "Main Street" of US suburbs beginning in the mid-20th century. But will they persist into the 21st?

Hirtle Callaghan & Co

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Asset Management, Investor/Finance, Leadership & Teamwork

In August 2019, Stephen Vaccaro, Yale MBA ‘03, became the director of private equity at Hirtle, Callaghan & Co., LLC (HC), a leading investment management firm associated with pioneering the outsourced chief investment office (OCIO) model for college endowments, foundations, and wealthy families. Vaccaro was tasked with spearheading efforts to grow HC’s private equity (PE) market value from $1 billion to a new target of roughly $3 billion in order to contribute to the effort of generating higher long-term returns for clients. Would investment committees overseeing endowments typically in the 10s or 100s of millions embrace this shift, and, more pointedly, was this the best move for client portfolios?

The Federal Reserve Response to 9-11

Jean rosenthal, william b. english, jaan elias.

Financial Regulation, Investor/Finance, Leadership & Teamwork, State & Society

The attacks on New York City and the Pentagon in Washington, DC, on September 11, 2001, shocked the nation and the world. The attacks crippled the nerve center of the U.S. financial system. Information flow among banks, traders in multiple markets, and regulators was interrupted. Under Roger Ferguson's leadership, the Federal Reserve made a series of decisions designed to provide confidence and increase liquidity in a severely damaged financial system. In hindsight, were these the best approaches? Were there other options that could have taken place?

Suwanee Lumber Company (B)

In early 2018, Blue Wolf Capital Management received an offer to sell both its mill in Arkansas (Caddo) and its mill in Florida (Suwanee) to Conifex, an upstart Canadian lumber company. Blue Wolf hadn’t planned to put both mills up for sale yet, but was the deal too good to pass up? Blue Wolf had invested nearly $36.5 million into rehabilitating the Suwanee and Caddo mills. However, neither was fully operational yet. Did the offer price fairly value the prospects of the mills? How should Blue Wolf consider the Conifex stock? Should Blue Wolf conduct a more extensive sales process rather than settle for this somewhat unexpected offer?

Occidental Petroleum's Acquisition of Anadarko

Jaan elias, piyush kabra, jacob thomas, k. geert rouwenhorst.

Asset Management, Competitor/Strategy, Investor/Finance, Sourcing/Managing Funds

In May of 2019, Vicki Hollub, the CEO of Occidental Petroleum (Oxy), pulled off a blockbuster. Bidding against Chevron, one of the world's largest oil firms, she had managed to buy Anadarko, another oil company that was roughly the size of Oxy. Hollub believed that the combination of the two firms brought the possibility for billions of dollars in synergies, more than offsetting the cost of the acquisition. Had Hollub hurt shareholder value with Oxy's ambitious deal, or had she bolstered a mid-size oil firm and made it a major player in the petroleum industry? Why didn't investors see the tremendous synergies in which Hollub fervently believed?

Hertz Global Holdings (B): Uses of Debt and Equity 2020

In 2019, Hertz held a successful rights offering and restructured some of its debt. CEO Kathyrn Marinello and CFO Jamere Jackson were moving the company toward what seemed to be sustainable profitability, having implemented major structural and financial reforms. Analysts predicted a rosy future. Travel, particularly corporate travel, was increasing as the economy grew. With all the creativity that the company had shown in its financial arrangements, did it have any options remaining, even while under the court-led reorganization?

Prodigy Finance

Vero bourg-meyer, javier gimeno, jaan elias, florian ederer.

Competitor/Strategy, Investor/Finance, Social Enterprise, State & Society, Sustainability

Having pioneered a successful financing model for student loans, Prodigy also was considering other financial services that could make use of the company’s risk model. What new products could Prodigy offer to support its student borrowers? What strategy should guide the company’s new product development? Or should the company stick to the educational loans it pioneered and knew best?

tronc: Valuing the Future of Newspapers

Jean rosenthal, heather e. tookes, and jaan elias.

Business History, Competitor/Strategy, Investor/Finance, Leadership & Teamwork

Gannet offered Tribune Publishing an all-cash buyout offer. Tribune then made a strategic pivot: new stock listing, new name "tronc," and a goal of posting 1,000 videos/day. Should the Tribune board take the buyout opportunity? What was the right price?

Role of Hedge Funds in Institutional Portfolios: Florida Retirement System

Jaan elias, william goetzmann and lloyd baskin.

Asset Management, Financial Regulation, Investor/Finance, Metrics & Data, State & Society

The Florida Retirement System, one of the country’s largest state pensions, had been slow to embrace hedge funds, but by 2015, they had 7% of their assets in the category. How should they manage their program?

Social Security 1935

Jean rosenthal, william n. goetzmann, and jaan elias.

Business History, Financial Regulation, Innovation & Design, Investor/Finance, State & Society

Frances Perkins, Franklin Roosevelt's Secretary of Labor, shaped the Social Security Act of 1935, changing America’s pension landscape. What might she have done differently?

Ant Financial: Flourishing Farmer Loans at MYbank

Jingyue xu, jean rosenthal, k. sudhir, hua song, xia zhang, yuanfang song, xiaoxi liu, and jaan elias.

Competitor/Strategy, Customer/Marketing, Entrepreneurship, Innovation & Design, Investor/Finance, Leadership & Teamwork, Operations, State & Society

In 2015 Ant Financial's MYbank (an offshoot of Jack Ma’s Alibaba company) created the Flourishing Farmer Loan program, an all-internet banking service for China's rural areas. Could MYbank use financial technology to create a program with competitive costs and risk management?

Low-Carbon Investing: Commonfund & GPSU

Jaan elias, william goetzmann, and k. geert rouwenhorst.

Asset Management, Ethics & Religion, Investor/Finance, Social Enterprise, State & Society, Sustainability

In August of 2014, the movement to divest fossil fuel investments from endowment portfolios was sweeping campuses across the United States, including Gifford Pinchot State University (GPSU). How should GPSU and its investment partner Commonfund react?

360 State Street: Real Options

Andrea nagy smith and mathew spiegel.

Asset Management, Investor/Finance, Metrics & Data, Sourcing/Managing Funds

360 State Street proved successful, but what could Bruce Becker construct on the 6,000-square-foot vacant lot at the southwest corner of the project? Under what set of circumstances and at what time would it be most advantageous to proceed? Or should he build anything at all?

Centerbridge

Jean rosenthal and olav sorensen.

When Jeffrey Aronson and Mark Gallogly founded Centerbridge, they hoped to grow the firm, but not to a point that it would lose its culture. Having added an office in London, could the firm add more locations and maintain its collegial character?

George Hudson and the 1840s Railway Mania

Andrea nagy smith, james chanos, and james spellman.

Business History, Financial Regulation, Investor/Finance, Metrics & Data

Railways were one of the original disruptive technologies: they transformed England from an island of slow, agricultural villages into a fast, urban, industrialized nation.  George Hudson was the central figure in the mania for railroad shares in England. After the share value crashed, some analysts blamed Hudson, others pointed to irrational investors and still others maintained the crash was due to macroeconomic factors.

Demosthenes and Athenian Finance

Andrea nagy smith and william goetzmann.

Business History, Financial Regulation, Law & Contracts

Demosthenes' Oration 35, "Against Lacritus," contains the only surviving maritime loan contract from the fourth century B.C., proving that the ancient Greeks had devised a commercial code to link the economic lives of people from all over the Greek world.   Athenians and non-Athenians alike came to the port of Piraeus to trade freely.

South Sea Bubble

Frank newman and william goetzmann.

Business History, Financial Regulation

The story of the South Sea Company and its seemingly absurd stock price levels always enters into conversations about modern valuation bubbles.  Because of its modern application, discerning what was at the root of the world's first stock market crash merits considerable attention. What about the South Sea Company and the political, economic and social context in which it operated led to its stunning collapse?

Jean W. Rosenthal, Jaan Elias, William N. Goetzmann, Stanley Garstka, and Jacob Thomas

Asset Management, Healthcare, Investor/Finance, Sourcing/Managing Funds, State & Society

A centerpiece of the 2007 contract negotiations between the UAW and GM - and later with Chrysler and Ford - was establishing a Voluntary Employee Beneficiary Association (VEBA) to provide for retiree healthcare costs. The implications were substantial.

Northern Pulp: A Private Equity Firm Resurrects a Troubled Paper Company

Heather tookes, peter schott, francesco bova, jaan elias and andrea nagy smith.

Investor/Finance, Macroeconomics, State & Society, Sustainability

In 2008, the lumber industry was in a severe recession, yet Blue Wolf Capital Management was considering investment in a paper mill in Nova Scotia. How should they proceed?

Lahey Clinic: North Shore Expansion

Jaan elias, andrea r. nagy, jessica p. strauss, and william n. goetzmann.

Asset Management, Financial Regulation, Healthcare, Investor/Finance

In early 2007 the Lahey Clinic in Massachusetts believed that expansion of its North Shore facility was not only a smart strategy but also a business necessity.  The two years of turmoil in the Massachusetts health care market prompted observers to question Lahey's 2007 decisions. Did the expansion strategy still make sense?

Carry Trade ETF

K. geert rouwenhorst, jean w. rosenthal, and jaan elias.

Innovation & Design, Investor/Finance, Macroeconomics, Sourcing/Managing Funds

In 2006 Deutsche Bank (DB) brought a new product to market – an exchange traded fund (ETF) based on the carry trade, a strategy of buying and selling currency futures. The offering received the William F. Sharpe Indexing Achievement Award for “Most Innovative Index Fund or ETF” at the 2006 Sharpe Awards. These awards are presented annually by IndexUniverse.com and Information Management Network for innovative advances in the indexing industry. The carry trade ETF shared the award with another DB/PowerShares offering, a Commodity Index Tracking Fund. Jim Wiandt, publisher of IndexUniverse.com, said, "These innovators are shaping the course of the index industry, creating new tools and providing new insights for the benefit of all investors." What was it that made this financial innovation successful?

William Goetzmann and Jaan Elias

Asset Management, Business History

Hawara is the site of the massive pyramid of Amenemhat III, a XII Dynasty [Middle Kingdom, 1204 – 1604 B.C.E.] pharaoh.  The Hawara Labyrinth and Pyramid Complex present a wealth of information about the Middle Kingdom.  Among its treasures are papyri covering property rights and transfers of ownership.

The red flags of financial statement fraud: a case study

Journal of Financial Crime

ISSN : 1359-0790

Article publication date: 7 July 2023

Issue publication date: 12 March 2024

According to the Association of Certified Fraud Examiners, financial statement fraud represents the smallest amount of fraud cases but results in the greatest monetary loss. The researcher previously investigated the characteristics of financial statement fraud and determined the presence of 16 fraud indicators. The purpose of this study is to establish whether investors and other stakeholders can detect and identify financial statement fraud using these characteristics in an analysis of a company’s annual report.

Design/methodology/approach

This study analyses a financial statement fraud case, using the same techniques that were previously applied, including horizontal, vertical and ratio analysis. These are preferred because stakeholders have relatively easy access to them.

The findings show several fraud characteristics, with a few additional ones not previously found prevalent. Financial statement fraud thus tends to differ between cases. It is also easier to detect and identify fraud indicators ex post facto.

Originality/value

This study is a practical case showing that financial statement fraud can be detected and identified in the financial statements of companies that commit fraud.

• Financial statement fraud
• Management fraud
• Fraud indicators
• Fraud characteristics

du Toit, E. (2024), "The red flags of financial statement fraud: a case study", Journal of Financial Crime , Vol. 31 No. 2, pp. 311-321. https://doi.org/10.1108/JFC-02-2023-0028

Emerald Publishing Limited

Copyright © 2023, Elda du Toit.

Licensed re-use rights only

1. Introduction

The losses from financial statement fraud do not only lie with the company but also with investors who lose share value and employees who lose jobs. A recent financial statement fraud case happened in a company with a primary listing on the Frankfurt Stock Exchange, Germany, and a secondary listing on the Johannesburg Stock Exchange (JSE), South Africa. Apart from regular investors, third-party investors in the form of Government Pension Fund contributors collectively lost millions. However, there is speculation that the irregularities in the company’s financial statements were easy to recognise and that those losses could have been prevented if non-financial personnel and laypeople investors understood the basics of financial statements [ 1 ].

Even though financial statement fraud represented the smallest amount of fraud cases (10% from a sample of 2,690 occupational fraud cases investigated worldwide between January 2016 and October 2017), it resulted in the greatest aggregate loss of US$800,000 per case, compared to US&250,000 and US$114,000 per case for corruption and asset misappropriation, respectively ( ACFE, 2018 ). This 10% represents only the cases where financial statement fraud has been successfully detected and identified, which means many more went undetected ( Dechow et al. , 2011 ).

The downfall of the case study company (hereafter referred to as Company X) wiped out the market value equivalent to 8% of South Africa’s gross domestic product. However, proper analysis of a company’s financial statements and market data could potentially have diminished this effect. Preventing the damage caused by financial statement fraud can lead to more efficient capital markets, ensure better returns for investors, reduce litigation costs for auditors and keep intact the reputation of analysts ( Dechow et al. , 2011 ).

Previous research has investigated the characteristics of financial statement fraud. The allegations of financial statement fraud made against Company X present an opportunity to test the characteristics of financial statement fraud from previous findings. The aim of this paper is thus to apply the financial statement fraud characteristics, as previously identified, on the annual reports of Company X to establish whether they are true indicators of financial statement fraud.

Financial statement fraud allegations and the effect on the market value of a firm can have dire consequences for employees, investors (individual and institutional), and analysts. This study sets out to establish whether stakeholders, through a relatively easy analysis and evaluation of a few years’ market and financial data from the publicly available financial statements of Company X, would have been able to detect fraudulent activities and thus could have saved their investments. Positive findings in this regard have the potential not only to benefit investors but hopefully also as a deterrent that will prevent companies from engaging in fraudulent actions. Even though there are more sophisticated techniques available to analyse financial statements for financial statement fraud, this paper aims to investigate specifically those techniques that are available to financial statement readers who do not have access to complex and expensive software or techniques and can only access publicly available data.

2. Literature review

Financial statement fraud is generally committed by executive decision-makers on behalf of the company and involves the falsification of the company’s financial statements ( Wells, 1997 ) to mislead users ( Rezaee, 2005 ). The most common techniques to commit this fraud include overstatement of revenues, understatement of expenses and inflation of asset values.

Many studies have been conducted to investigate the detection and identification of financial statement fraud. See, for example, Bell and Carcello (2000) , Beneish (1999) ; Herawati (2015) , Kamal et al. (2016) ; Kaminski et al. (2004) ; Kanapickienė and Grundienė (2015) ; Lee et al. (1999) ; and Malgwi and Morgan (2017) , to name but a few. However, many of the studies investigate fraud indicators or use methods outside the realm of what the average investor or other stakeholders can observe or measure, such as the more complicated Beneish M-score model or data mining techniques ( Beneish, 1999 ; Beneish et al. , 2013 ; Herawati, 2015 ; Kamal et al. , 2016 ; Malgwi and Morgan, 2017 ; Ravisankar et al. , 2011 ). Investors appear to be interested in red flags associated with financial statement fraud but tend to focus on those easier to observe, such as stock exchange investigations, pending legal cases, violations of debt agreements and high management turnover ( Brazel et al. , 2015 ).

2.1 Fraud characteristics

In previous studies, the author identified 18 characteristics of financial statement fraud from the literature, which were further investigated and refined, using five South African case study companies with allegations of financial statement fraud against them. The quantitative analyses used horizontal and vertical financial statement analyses, supplemented with ratio analyses and structural break analyses of the companies’ share price over each company’s “fraud period”. A qualitative content analysis was performed of the narrative reports of the companies, as well as an event study of news reports about the companies. These analyses confirmed 9 of the original 18 characteristics, together with a further 7 that were significant in the case study companies specifically.

Financial statement fraud instances in South Africa appear to share several traits. Firstly, irregular accounting practices frequently result from bad cash flow patterns. Secondly, due to the drive to keep ahead of the competition, younger companies are more likely to experience accounting problems. Thirdly, a company’s culture, such as a lack of process documentation or a competitive attitude, may point to a higher risk for accounting irregularities. A larger probability of accounting irregularities is also influenced by high debt levels and financial difficulty. In addition, businesses that have no audit committee and fewer outside directors on the board of directors are more vulnerable. Decentralised businesses that have corporate operations located far from headquarters are likewise more likely to experience accounting errors. Furthermore, businesses with autocratic management staff are more likely to experience accounting irregularities. Finally, businesses that engage in accounting irregularities frequently have unexpected increases in inventories and receivables.

Other traits that are common in financial statement fraud instances in South Africa include a company’s size and organisational changes, such as mergers and acquisitions, which have been proven to enhance the chance of accounting problems. Companies with financial statement fraud also exhibit changes in some financial statement line items that are different from those in the industry, as well as a leading or lagging effect when compared to the industry. Research has indicated that price/earnings ratio (P/E) ratios with a falling trend are an indicator of a period in which accounting irregularities occurred, and a lack of dividend payments is frequently an indicator that a company is facing troubles. In addition, it has been discovered that most irregularities are found and identified within two years of their occurrence. And finally, when compared to statistics provided by other businesses in the same industry, organisations who engage in financial statement fraud frequently only report tiny values for tax charges or tax liabilities.

2.2 The case of Company X

Company X was established more than 50 years ago as a retailer of a variety of goods and is the world’s third-largest integrated household goods retailer as measured by turnover. It holds 40 brands and 12,000 retail stores in more than 30 countries.

The company was investigated by German authorities in 2015 for accounting irregularities. It then faced a dispute with a joint venture partner relating to the September 2016 accounts, which were to be heard in the Amsterdam Court of Appeal in September 2017. The outcome of the hearing was an order for Company X to restate their 2016 accounts. On 5 December 2017, allegations of financial statement fraud in Company X became known. A report by Viceroy Research has published on the same day that the company admitted to wrongdoing and the chief executive officer (CEO) resigned [ 2 ]. The report pointed to so-called “financial engineering” to hide losses and increase earnings (e.g. ZAR 13.5bn spent on investments, but failing to improve profitability). Some techniques they used include loans to off-balance-sheet-related party entities; disguising losses; and tax and depreciation manipulation. Another alleged fraud was the sale of a loss-making company to boost the share price, even though it later transpired that the company was never really sold. The fraud shock was further exacerbated when it was made known that not only the 2017 but also the 2016 financials had to be restated because of accounting irregularities.

Later reports indicate that internal emails from 2014 were uncovered, where revenue figures were moved around subsidiaries to boost the balance sheet. This means that the financials had to be restated from 2014.

The signs of irregularities, especially in board oversight, were recognisable and various parties, such as market analysts and investors, claim that they issued warnings that something was amiss. A South African asset manager called on the Company X advisory board to resign months before a case for financial statement fraud could be made.

Even though trading Company X shares was not suspended, as many suspected would be the case, the company did lose more than 84% of its market value in three days before the news officially broke. Even though the share price shows some improvement, it is still far removed from its all-time high of R74.01 on 19 May 2017 (see Figure 1 ). The demise of Company X also affected other companies of which Company X is a shareholder, as well as those who extensively invested in Company X. In addition to a reduction in market value (see Figure 1 ), the credit ratings agency Moody’s downgraded Company X in Europe from B1 to Baa3 and Company X in South Africa from Aa1.za to Baa3.za.

3. Research method

This research is conducted in the form of a case study to investigate whether the previously identified financial statement fraud red flags apply to Company X. Financial statement data are often used in analyses to detect and identify manipulation or financial statement fraud ( Beneish et al. , 2013 ). The study includes quantitative and qualitative analyses of Company X from 2010 to 2016. These methods are chosen mainly for the ease with which any stakeholder, without access to sophisticated techniques or inside information, can perform such analyses. Financial statements of companies are publicly available, and many ratios are presented in the statements and financial magazines or newspapers.

The horizontal analysis investigates how financial statement line items change from one year to the next while vertical analysis is where financial statement line items are expressed as a percentage of total assets in the statement of financial position or as a percentage of turnover in the statement of comprehensive income. For ratio analysis, one investigates exceptional changes from year to year and compares ratios to those of other companies in the industry [ 3 ]. The quantitative horizontal, vertical and ratio analyses are complemented with t -tests to investigate whether any of the observations made from the horizontal, vertical and ratio analyses are statistically significant: (1) t = ( M − μ ) s n

Observations of qualitative financial statement fraud characteristics such as company culture and insider trading provide insights into possible risks that could potentially have been identified.

The analyses of the financial statements are supplemented by a structural break analysis of the share prices of the company over the alleged period of financial statement fraud. The Bai–Perron structural break test is a commonly used method to test for structural breaks in time series data. The test statistic is calculated as follows: (2) t n = n ( − 1 2 ) max ⁡ ( 1 ≤ k ≤ K ) [ { n / T k } × | ∑ { t = 1 ) { T k } X t − X k ¯ | − δ k ] where:

n = is the sample size;

K = is the number of possible break points in the data;

T k = is the number of observations in the k th segment of the data;

X t = is the value of the time series at time t ;

X ¯ k = is the sample mean of the k th segment of the data; and

δ k = is a bias correction term that depends on the number of breakpoints and the properties of the time series.

The structural break analysis is conducted in conjunction with a qualitative investigation of the news items that could be observed around the time that structural breaks occurred in the share price of the company. This analysis aims to establish whether certain news items or unexpected changes in share prices may be indicators of something more significant.

All analyses are also performed for the three companies in the same Johannesburg stock exchange industry, namely, personal and household goods, which had no allegations of financial statement fraud over the same period. Even though this does not mean no financial statement fraud occurred in those companies, any possible fraud was not detected and identified. However, if all the companies in the analyses show the same trends (e.g. increased inventory levels), it is less likely that the character is a result of fraudulent action but could rather be thought of as an industry-related occurrence.

The results of the analyses are discussed in terms of quantitative factors, qualitative factors and structural break analyses. In the interest of space, only those items where significant results were found are discussed in the sections that follow.

4.1 Quantitative factors

Table 1 presents a summary of the most significant quantitative factors that were identified through t -tests performed on the horizontal, vertical and ratio analyses. Most of the significance occurred in the horizontal analysis. A brief discussion of each characteristic as identified earlier, as well as added items, follows.

Company X showed a sharp increase in cash and cash equivalents, as opposed to an expected poor cash flow status. An analysis of the cash flow patterns of the control companies shows significant fluctuations, negative and positive, albeit not statistically significant. Financial statement fraud is often disguised through the manipulation of current assets, especially accounts receivable and inventory. The receivables and inventory values of Company X saw significant changes over the period. The changes in current assets did not reflect similarly in the statements of the three control companies. In addition, turnover, cost of sales, gross profit and other profit figures increased significantly, not in line with the increases shown by the other companies. With cases of financial statement fraud, significant increases in turnover, gross profit and other profit figures are often seen in conjunction with unexpected increases in inventory and receivables.

High debt levels and significant fluctuations in the use of debt can be an indication of irregularities. In terms of liabilities, Company X showed significant increases in both long-term and current liabilities in comparison to the other companies. Apart from the increased liabilities that Company X incurred, their financial distress score was also significantly low (a low score indicative of financial distress). The other companies in the industry also experienced distress, which may have been an aftereffect of the financial crisis and is thus not necessarily an indicator of financial statement fraud.

Company X did not pay any dividends from 2007 to 2012. Thereafter, dividend payments increased significantly every year, but were not in line with cash flow, as can be seen by the cash flow dividend cover. Previous research has indicated that the non-payment of dividends may be an indicator of an increased likelihood that irregularities may occur, however, the non-payment of dividends happened a significant period before the alleged irregularities. The P/E ratio did not show significant decreases, as expected and the tax values for the company over the period were not unexpectedly low.

There were significant changes in items that were not previously identified as financial statement fraud characteristics. The analyses showed that intangible assets, with goodwill and patents/trademarks specifically, increased significantly over the period, not in line with the other companies. Company X obtained significant amounts of share capital throughout the period under investigation. The other companies investigated also showed increases in total ordinary shareholders’ capital, but this was mostly a result of increases in distributable reserves, whereas the increase in total ordinary shareholders’ interest in Company X was the result of significant changes in ordinary share capital. It is also noticeable that the company held significant amounts of fixed assets compared to other companies.

4.2 Qualitative factors

This section considers qualitative characteristics that are indicators of financial statement fraud.

Company X has been operating for more than 50 years. In terms of previous findings, it is more likely for younger companies to engage in fraudulent activities, while trying to establish a foothold in the market. The age of Company X, therefore, did not play a specific role in financial statement fraud activities if younger companies are considered to be more likely candidates to be at risk.

An outside stakeholder cannot gauge the “culture” of a company. However, researchers recommend that one investigates whether the company has policy documents in place that formalises processes (e.g. codes of conduct, ethics policies). A review of Company X’s website has shown that the company has detailed policies and documents available. These documents can be considered fairly recent, with the latest being updated in 2015 (observation made on 27 July 2019). It, therefore, does not appear, as far as an outsider can observe, that the company’s culture was conducive to an environment that approves of irregular behaviour.

Previous research has found that, even though challenging to observe, directors can have a predisposition towards irregularities. If a company does not comply with the requirements of a stock exchange or other codes in terms of director requirements, it may be that they are intentionally disregarding such stipulations. The Company X board planned to release unaudited financial statements, which were communicated through Stock Exchange News Service (SENS) on 4 December 2017. This shows a concerning lack of corporate governance. South Africa’s Public Investment Corporation, which was the second-largest shareholder at 10%, questioned the board’s independence and hinted at the chairperson having conflicts of interest. The board dominance of specific families was also brought into question. Apart from the above, one can speculate about the profile of the Company X board, being mostly older white males. This does not necessarily point towards white males being a problem but rather shows a lack of diversity, which creates an environment conducive to unethical behaviour. It is also noticeable that the chairperson of the board was a large shareholder. In the case of Company X, there has also been a significant amount of speculation about the profile of executive management, especially after the “disappearance” of the CEO. However, it can only ever be speculation. There is also no information available about management shareholding in the firm.

A geographically dispersed company with divisions or subsidiary companies in remote locations is more likely to experience accounting fraud. This is due to the difficulty to provide sufficient board and top management oversight at a distant location. Because the fraud occurrences took place at a high level at the head office of the company, geographic location is unlikely to have increased the likelihood of financial statement fraud in Company X.

Company X has been on an aggressive acquisition streak over the six years before irregularities became known. In 2016 alone, the company acquired four companies. These acquisitions showed poor profitability, despite ZAR 13.5bn spent on these investments. It appears that the company may also have overpaid for certain acquisitions. The acquisitions are public knowledge and can be considered a red flag, but there is no concrete proof regarding overpaying for acquisitions.

Financial statement line items with a tendency to have changes contrary to those of the industry could not be readily confirmed. Because of the financial crisis from 2007 to about 2009 and its aftermath, all the firms showed fluctuations in financial statement line items and ratios. A leading or lagging effect concerning significant changes in the financial statements of the company and the industry could also not be readily confirmed due to various fluctuations in the line items and ratios of the companies, likely due to the effect of the financial crisis and its aftermath.

Previous research has found that irregularities occurred for two or fewer years before the irregularities were detected and identified. Speculation about the occurrence of accounting and tax irregularities in the 2016 financial statements first became known in August 2017, at which time the board first denied, but acknowledged two weeks later. Four months before the news of the accounting irregularities broke, German prosecutors have reportedly been suspecting accounting statement fraud in Company X and started investigations. Their investigation stretched back to 2015. Sources claim that the Company X CEO was in email contact in 2014 with German managers about misrepresenting financial data. It thus appears as if this characteristic held for Company X and that the fraud was detected and identified approximately within two years of its first occurrence.

In the case of Company X, it appears that complex accounting and related-party transactions were one of the company’s major irregular practices. According to Intellidex, the Portsea Asset Management report found a significant number of off-balance-sheet-related party entities and transactions that were never properly disclosed ( Theobald et al. , 2018 ). These transactions were mainly used to remove unprofitable entities off the books, give loans to the purchasers of its unprofitable entities, improve sales figures through overstatement of revenue and profit and hide impairment losses.

Significant shareholding by board members is a known red flag for corporate fraud. Even though it was not shown to be significant in the cases originally investigated by the author, significant shareholding appears to have had an impact on Company X. According to reports, the Public Investment Corporation questioned the amount of board member shareholding.

During the conducting of the analyses, a few additional fraud characteristics, not previously mentioned in the literature, were observed. The average life span of Company X’s assets was 24 years, compared to an average life span of 14 years for similar companies ( Theobald et al. , 2018 ). This may have been part of an attempt to artificially reduce expenses and inflate income. An announcement was further made that a loss-making company within the Company X group was sold, which boosted the share price. However, the company was never really sold, meaning that insider trading took place. This is unfortunately a characteristic or red flag that is difficult to detect and identify.

4.3 Structural break analysis

The Bai–Perron tests of L  + 1 vs L sequentially determined breaks resulted in three dates within the 2010 to 2016 period where significant breaks in the share price pattern occurred. The structural break analysis showed nothing significantly out of the ordinary in terms of share price movements or SENS news items in the period from 2010 to 2016 and no further discussion is thus warranted.

5. Conclusions

Stewardship theory places managers and directors in charge of wealth maximisation for shareholders ( Davis et al. , 1997 ; Donaldson and Davis, 1991 ). However, managers and directors seek wealth maximisation, their own included, as per agency theory ( Donaldson and Davis, 1991 ; Jensen and Meckling, 1976 ). The financial statement fraud as it occurred in Company X may have had its origin in both these theories.

The study made use of quantitative and qualitative analyses of financial statement information to test the characteristics of financial statement fraud. The aim of an analysis of publicly available financial statement line items and ratios is to establish whether it is possible to use information and measures, which are relatively easy to obtain and use, for fraud detection and identification. If this is possible, it will allow individual shareholders and analysts to benefit from published financial information to protect their interests. Even though several characteristics have been identified in previous research as being more likely to be present in financial statement fraud cases, this study does not focus on those alone but does evaluate all financial statement line items and all ratios. This allows for possible new insights.

From horizontal, vertical and ratio analyses of Company X, it appears that the predictive ability of financial statement fraud in the annual financial statements of a company is limited at best. The following traits were determined to be indicators of financial statement fraud based on the analysis of Company X: sizable acquisitions, complicated accounting and related-party transactions, a dominated board structure, dispersed geographic location, irregularities occurring for two or fewer years before detection, sizable increases in current assets, sizable shareholding by board members and lower tax charges/liabilities compared to the industry average.

The analysis revealed potential indicators of accounting irregularities in addition to the characteristics that had already been confirmed: a lower depreciation rate than the industry average, statistically significant changes in fixed assets with higher values than competitors, a lower gross profit margin than peers, significant increases in intangible assets, statistically significant increases in ordinary share capital and a significant increase in turnover.

An important observation from this study is how fraud characteristics can differ from case to case. The author initially identified from the literature 18 characteristics of financial statement fraud. Thereafter, through the analyses of five case study companies with allegations of financial statement fraud, it was narrowed down to 9 characteristics. The author also found another 7 characteristics that were not previously identified. These 16 characteristics formed the basis of the study conducted here. However, not all 16 were indicators in Company X and some of the 9 that were not found to be characteristics of fraud did feature as risk factors in the case of Company X. There were also a few additional red flags that has not before been formally identified as fraud characteristics. This provides evidence that each case is different and that the concerned investor or stakeholder should take note of all aspects of a firm. Industries differ in nature, bringing forth extra challenges.

The diversity of items that showed up as suspicious ex post facto is a clear indication that the detection and identification of financial statement fraud are not straightforward, or easy. The real value that financial statements offer to the readers thereof is questionable.

As with any study, this one also presents some limitations. In the first instance, it is a challenge to find companies with financial statement fraud allegations against them. There has thus been a significant delay between the previous study and this one. In addition, the analysis of a sole case study is a rather obvious limitation. It is impossible to generalise the results presented here to other companies or financial statement fraud cases. The usual recommendation of a larger sample is not necessarily feasible. This research is thus rather a means to create awareness. The findings, albeit to some extent inconclusive, are of value to investors, employees, managers, credit rating agencies and any other stakeholder with a vested interest in a company. Interested parties need to be vigilant for any transactions or dealings in a company that appears to be out of the ordinary:

As the saying goes, “When something feels wrong, it probably is”. – Anonymous

Share price movement

Summary of t -test results for Company X

n = 9; df = 8

Source: Author’s own analyses using publicly available data

Note that all sources for such statements had to be omitted to ensure the company in question remains anonymous.

Even though Viceroy Research Group was the first to formally reveal the presence of irregularities in the dealings and financial statements of Company X, the report has been plagiarised from an unavailable report by Portsea Asset Management, a London-based hedge fund. Intellidex, a leading South African capital markets and financial services research house, revealed this in June 2018. In the interest of sound research practices, only sections from the Portsea Report, as disclosed with permission by Intellidex, will be used in this article. The Viceroy Report is only mentioned as being the vehicle that first made the irregularities formally known to the public.

In the interest of space, the tables containing the horizontal, vertical and ratio analyses are not reproduced in the text, but only discussed.

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