The moment you read Satyam's chief Ramalinga Raju's letter to the Board, you can sense that there is more to it than what you see in the letter. Its unimaginable to see a company with over 53000 employees run with just 3% operating margins. Another thing that was hard to swallow was non-existence of Rs.5,040 crore by inflating profits over seven years. The gap in the Balance Sheet had not arised purely on account of inflated profits over a period of time but it was clear money was siphoned off to buy lands. Money did exist, company did have real clients, real people and it was profitable indeed.
But is this is the only instance where we have failed when it comes to corporate governance. It might not surprise you all that these kind of small financial frauds do exist in India but the only difference is the magnitude and reach. Talk to any small business man in the country and they'll tell you that they know various ways to inflate profits and valuations.
I was reading an interesting article about 12 ways a company can inflate its profits in Mint which was done with the collaboration of Crisil.
These are just a few ways but i am very sure small time business men know much more than this
12 ways a company can inflate profits :
1. Write-off expenses from reserves
2. Show previous year’s expenses as this years income
3. Revalue assets to write off losses/expenses
4. Revalue assets to write off transfer values
5. Show loan waiver as income
6. Transfer loans to associates
7. Transfer fixed assets to current assets
8. Continue with dead projects.
9. Inventory valuation
10. Inflate sales
11. Sale/Lease back of assets
12. Change depreciation policies.
All of you are welcome to share your thoughts on this.