Nick Mathiason of London-based Finance Uncovered provides training to journalists investigating finance and business. A company’s accounts may seem like a daunting document at first, but Mathiason’s training will help you find the stories hiding in the numbers.
Mathiason’s first advice is to “think like an executive”: Your company is publicly listed? Then you will try to boost your balance sheet to earn that fat executive bonus.You own a private company? Then you probably want to depress your earnings to pay fewer taxes and discourage potential competitors.
“And there’s only a limited number of ways to do that: either overstate your cost of sales or understate your revenue”. This was Starbucks’s tax avoidance scheme in the UK. How did Mathiason find out? Their accounts stated they were losing money. At the same
time, they were prospecting great returns to investors, and expanding all over the UK. If you’re genuinely running a loss, you would have no money to pay dividends to investors or indeed to grow your business.
In fact, they were inflating their costs. Compared to their UK competitor Costa Coffee, Starbucks’ operational costs were two or three times bigger, although their turnover was of comparable size. In other words, Starbucks claimed their cup of coffee was up to three times more expensive to make than Costa’s, to avoid paying taxes on profits.
A wealth of stories hides in the numbers, it only takes a trained eye to learn to recognise them.
The investigative journalist’s guide to company accounts, by Raj Bairoliya. Order it online from the Centre for Investigative Journalism.
And follow Nick at @FinUncovered to discover about training opportunities.