Negative Revenue in Financial Reporting

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Reading “Business Times” on my way to office while travelling in the bus has become a routine to me. That is the only time where I can pick up some financial news, or maybe interesting stories, and not having any distractions from others.

While it is not uncommon to read financial updates of listed companies after closing of quarterly results, this particular news has caught my attention. Headline of the news is …. Celestial posts rare ‘negative revenue’, and …. “Heavy sales returns help widen Q2 net loss to 673m yuan. The first question that crossed my mind was how it could happen.  I have never come across financial statements showing a negative margin, not even when I was in the auditing field in the past.

This piece of news could be interesting to non-finance professionals, but to Accountants, in particular the auditors, this is a big issue. It is for sure that this news will create some repercussion in the market especially to investors, banks, employees, creditors and other stakeholders.

Celestial Nutrifoods Ltd is a China-based producer of soyabean food and beverages which was established in 1997. It has reported a net loss of 673m yuan because of a huge sales return of 437 million yuan (S$87.7 million) for the three months ended June 30, 2010.

It further said that “the significant level of sales returns experienced by the group in the current quarter as customers were hesitant to promote the group’s products and held back on repayments.” However, the company did not say who its customers were. The “negative revenue” has therefore led to a suspension of its shares from trading as customers’ confidence had been shaken by concerns of its liquidity problems and solvency status.

This incidence has delivered a few important messages to us, which are:-

  • To ensure sustainable growth for the future, we have to understand the industry and get to know our customers – Customer Management.
  • An effective way to increase company value is to optimize the organization’s accounts receivable, accounts payable processes and treasury function – Working Capital Management.
  • To identify key business risks so as to avoid unwelcome surprises and to promote awareness and responsibility for managing risk among all employees.



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