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Running head: WIRECARD ANALYSIS

Wirecard Financial Analysis

(Name)

(Institution)

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WIRECARD ANALYSIS

Wirecard Financial Analysis

Wirecard admitted the potential magnitude of a notable accounting fraud (Finimize, 2020;
Storbeck, et al., 2020). This owes to the failure of numbers to be based on actual results. Fintech Group,
one of the whistleblowers, had warned that independent accountants failed to determine the actuality of
€1.9 billion included on the affected firm’s balance sheet. Regarding Donald Cressey’s fraud triangle,
individuals experience the motivation to engage into fraud following the coming together of three
elements (Albrecht, 2014). One is perceived pressure. The second is discerned opportunity, and the third
rationalization of related actions. Take the case of Wirecard, perceived pressure regards the
management’s awareness that the financial performance of the firm was dismal. This created the financial
desire to paint a good picture because investors compare performance of firms when making decisions.
Therefore, before the auditor’s arrival, an inflation of specific figures worked well.

In respect of the rationalization of related actions, the fraud was based on the desire to find favor
among investors (Finimize, 2020). As shares face dead loss, Wall Street pushes companies to maintain
high earnings and stock prices. Likewise, share options and bonus packages are limited to firm
performance. Regarding discerned opportunity, the responsible persons made out the chance to paint a
misleading picture of the firm’s financial performance through round tripping. The group allegedly
performs a third-party acquisition venture in Europe, implying it manages various organizations’ credit
card payments. The management had also admitted outsourcing some payment processing activities to
third parties. Investors were unlikely to detect the firm’s financial manipulation owing to the link between
the independent auditor and the client. The following chart depicts the fraud triangle with respect to
Wirecard’s case.
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WIRECARD ANALYSIS

Pressure
The need to manipulate revenue due to dismal
financial performance

Wirecard Fraud

Rationalization
Opportunity The desire to find favor among investors
Round tripping Share options and bonus are limited to
company performance

Consequently, Wirecard’s collapse is turning out to be one of Germany’s most significant

accounting scandals, involving improper revenue recognition through round tripping (Finimize, 2020).
While not certainly illegal, the activities ultimately fail to issue any actual economic benefit to either
company. A review of the firm’s receivables and inventory trend between 2014 and 2018 shows both
items have been increasing in value throughout the period. Still, the rising trend is reflected in revenue.
The company has experienced an amazing growth in revenue between 2014 and 2018. In 2014, the
revenue is €601 million and in 2018 it is €2,016 million. This means a 235 percent increase in revenue in
five years. The figures are impressive, but there is inadequate detail concerning the revenues, the
customer base size, or the firm’s efforts toward innovation. The graph below shows the movement in
revenue between 2014 and 2018.
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WIRECARD ANALYSIS

Revenue Trend, 2014 to 2018

2500

2000
Revenue (€)

1500

1000

500

0
2014 2015 2016 2017 2018
Year

(Source: WSJ, 2020)

The chart shows a significant turning point and accelerated increase in revenue in 2016. The
company’s receivables turnover ratio from 2015 to 2018 is, in the order, 1.97, 2.08, 2.42, and 2.47 (WSJ,
2020). The rising trend may imply Wirecard has been more efficient in collecting accounts receivable and
that it has an adequate number of quality customers. Still, the company’s accounts receivable growth has
been remarkable, with the rate doubling between 2017 and 2018. Also, the increasing trend could mean
that the firm operates using cash. This regards the firm’s increasing figure for cash and short-term
investments over the years. In respect of inventory turnover ratio, the firm’s proportion from 2015 to
2018 is 145.71, 147.11, 116, and 118.5, in the order. As evident, there is a significant decline in the
quotient in both 2017 and 2018.

It could mean the management has been ineffective in controlling the firm’s inventory. In regard
to the interest coverage ratio, the quotient for Wirecard in 2014, 2015, 2016, and 2018, respectively, is
19.57, 19.77, 15.5, and 15.90 (WSJ, 2020). The reducing trend concerns investors. It reveals the
company’s rising incapacity to meet its obligations in the future. Moreover, the firm depended on a small
fraction of its customers for most of its genuine sales (McCrum, 2020). In 2017, the Financial Times
reviewed the firm’s clients, revealing that only 100 customers have been contributing to well above 50
percent of its revenue. Indeed, the firm displayed limited transparency, causing a reduction in its earnings
quality. At the same time, the issue involved the smoothening of earnings to portray the firm has having
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WIRECARD ANALYSIS

adequate performance when, in fact, it was not. The following table summarizes the outcome of the
analysis.

2014 2015 2016 2017 2018

Revenue (€) 601 771 1,028 1,489 2,016

Receivables - 1.97x 2.08x 2.42x 2.47x

turnover

Inventory - 145.71x 147.11x 116x 118.5x

turnover

Interest - 19.57 19.77 15.5 ,15.90

coverage

(Source: WSJ, 2020)

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WIRECARD ANALYSIS

References

Albrecht, W. S. (2014, August). Archive. Retrieved July 18, 2020, from Fraud Magazine:
https://www.fraud-magazine.com/article.aspx?id=4294983342

Anderson, D., Sweeney, D., Williams, T., Camm, J., & Martin, R. (2009). Quantitative methods for
business. Cengage Learning.

Finimize. (2020, June 23). News. Retrieved July 18, 2020, from Finimize:
https://www.finimize.com/wp/news/wirecard-declined/

McCrum, D. (2020, June 30). Archives. Retrieved July 18, 2020, from Financial Times:
https://www.ft.com/content/7c466351-02fe-4d66-85a1-53d012de7445

Storbeck, O., McCrum, D., & Palma, S. (2020, June 22). Companies. Retrieved July 18, 2020, from
Financial Times: https://www.ft.com/content/2581fda5-8c89-46b5-9acf-ba8a88d74d88

WSJ. (2020, July 18). Market Data. Retrieved July 18, 2020, from Wall Street Journal:
https://www.wsj.com/market-data/quotes/WRCDF/financials/