Thursday, June 2, 2011

COGO Excessive Good Will - How to Account Fraud, with Antar (Crazy Eddie)

"You gotta watch the goodwill," says Antar. One way for an executive to overpay for an acquisition is to inflate goodwill -- the excess of the purchase price over the fair market value of a target's assets and liabilities. Once again, the skeptical investor must go to the filings. If it turns out that goodwill makes up a majority of a company's assets -- watch out.

Accounting Fraud:A "How-To" Guide

A List of COGO's Acquisitions and goodwill associated with the acquistion.
In 2006, COGO purchased Viewtran Technologies (company with ties to the CEO) for 58,529,000 RMB. Of this purchase price, 47,469,000 RMB was in goodwill and 9,707,000 was in intangibles (of the intangibles, 6,610,00 was in customer relationships).

In 2006, COGO purchased the remaining 40% Shaghai E&T for 16,000,000 in cash. Of the purchase price was in 4,264,000 goodwill and 5,467,000 was intangibles assets (all from customer relationships)

In 2007, COGO purchased the remainder of the 45% interest in Comtech Broadband for 113,193,000 RMB  (2/3 in cash, 1/3 in stock) 47,561,000 RMB of this was in Goodwill and 74,578,000 RMB (66,202,000 was in Customer relationships) for the Intangibles.

In 2007 COGO purchased Keen Awards for 66,032,000 RMB, of which 73,007,000 was in intangibles and 63,009,000 RMB was in customer relationships.

In 2008, COGO purchased a 70% interest in Longrise for 60,921,000 RMB. Of that, 21,422,000 was in Goodwill and 34,567,000 was in intangibles.

In 2009 COGO purchased Mega Smart Group for 122,415,00 RMB (paid in installments) Of the purchase price 80,226,000 RMB is attributable to goodwill, and 50, 526,000 RMB to intangibles with 24,580,000 attributable to  customer relationships, and 8,876,000 attributable  to supplier relationships.

In 2011 COGO purchased MDC Technologies for 144,372,000 RMB. Of this purchase price, 49,669,000 RMB was in goodwill, and 113,417,000 RMB was in intangibles assets. Including 21,786,000 for customer relationships and 90,443,000 RMB for non-compete agreements.

COGO Short Thesis by Joshua Wallis (*cough* vanity post)


1 comment:

  1. I was shocked to learn about the concept of "goodwill" in an accounting course that I took last fall (I really threw myself into it because I was going through a divorce and needed to distract myself). Notably, my teacher had nothing about goodwill on the final exam, which makes me think she, too, was not too keen on the concept.
    Quite simply, it's a stupid, fraudulent concept. It might make sense from a personal accounting standpoint, say, if you buy overpriced lemonade from the kid down the street--the difference between what you pay and what the lemonade is really worth could safely be regarded as "good will" with your neighbors--but the idea that when Citibank or Bain Capital purchases another company they can call that difference an "asset?" You've got to be kidding me. Let's get rid of "good will" altogether, and call it "loss on purchase."