Sino Forest Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Sino Forest Case Solution

When audit firms obtain a new client, the members of the engagement team perform a thorough review of the client’s financial statements. The analytical results are then compared to industry data (benchmarks). The purpose of the review is to identify issues that may lead to financial statement risks. Such issues may take the form of unusual relationships among account balances, or an identified need for specialists to address complex areas. In summary, this work step addresses two auditing standards: technical training and adequate planning.

This case has five questions (Parts) that will guide you through your analysis and risk identification phase.

Part I – Utilize all the financial information provided in the case to perform a financial ratio analysis of the Sino Forest financial statements from 2008-2010. Assess the Company’s operating performance, asset efficiency, growth and financial condition when compared to economic and industry data. Identify any unusual relationships in the numbers you analyze.

In order to identify the financial position of the company, ratio analysis has been performed. By analyzing the financial position of the company, it is clear that Sino Forest company is performing well and the financial health of the company is improving continuously as the performance increased from 2008 to 2010 since Sino Forest is more focused on its operating performance and short term growth specially to attract the creditors and supplier of raw materials for production.

It is expected that the management of the company is not focusing on long term growth and this results in the decline of investors’ wealth as well as the management of the company is not meeting the obligation of maximizing the shareholders’ wealth, which could affect the financial position of the company as investors could shift towards its competitors. It is expected that Sino Forest’s financial growth has increased however, overall it has remained constant as Sino Forest’s total debt to asset ratio and long term debt to net working capital has increased due to efforts of Sino Forest for attracting creditors and suppliers of the Sino Forest. As Sino Forest’s debt to equity ratio and capitalization ratio have reduced, therefore the overall financial growth of the company remains constant.

It is expected that the management of the company is not performing well with respect to asset efficiency and profitability as the management of the company is managing its working capital cycle effectively which could create problem for the management and for the company in future. By improving the working capital, the liquidity will increase regardless if the company will get confidence of suppliers and creditors or even if the company has enough money to make payments. On the other hand, the company’s investors’ confidence will decline as if the liquidity of any company is high then that shows that the company’s fixed asset investment is lower, which ultimately gives a signal to investor that this company is more risky for getting good return due to low investment in fixed asset and other projects, therefore the company has high liquidity..............

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