How Wirecard Concealed Its €1.9 Billion Plothole

Good luck squeezing out of this one.


Wirecard, the major German payment processing company, has shown in an audit that its books are missing around €1.9 billion in cash. It turns out, as per external reviews, that this cash never actually existed at all. This time isn't the first that Wirecard has run afoul of auditors. Let's step back a few years to discover where Wirecard came from, how it functions today, and how it ended up in such a mess.


Wirecard, founded in 1999 during the dot com boom, is one of the few surviving companies born in that bubble's era. The company began as an online payment processor for web-based companies, a novel concept at the time, and grew through this initial value proposition. While it remains a digital payment processor, this core concept is more applicable some 20 years later, as every business maintains some online presence.


Wirecard's contemporary service offerings:

Wirecard is a market leader in global payment solutions for over 300,000 customers, employing more than 5800 workers in 26 locations worldwide. It is a company that brandishes a multi-billion-Euro market cap and was poised to earn over €1 billion in EBITDA over the year 2020; no small sum in the face of the Covid-19 global pandemic. However, EBITDA, or net income added to interest, taxes, depreciation, and amortization is not necessarily a dependable way of discerning a company's profitability. According to the company's domicile, institutions pay interest accrued on debt or bonds issued and are also responsible for taxes. A company must also account for depreciation of owned assets over time and the potential amortization of loans depending on the payment structure.


EBITDA is a fluffed-up, inaccurate version of actual earnings. According to Investopedia, companies tend to spotlight their EBITDA performance when they have a less-than-appetizing net income. In Wirecard's case, the goal may have diverted analysts and investors from the sizable missing €1.9 billion, especially compared to the €1 billion per annum. …This article was originally published at The Data-Driven Investor, read the full version.



Originally published at https://www.datadriveninvestor.com on June 19, 2020.



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