Company as ATM

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At Karbon purchase cards, we are sometimes baffled by corporate expenses. A lot of promoters use company’s money to purchase cars, mostly luxury cars worth Rs. 50,00,000 or above. We agree that it is hard to build endurable companies, and the entrepreneurs must be rewarded for their hard work. It made us believe that few promoters are using company’s balance sheet as their own personal ATM. We believe that there is a fine line between corporate expenses and personal expenses, and one should walk this line carefully.

During review of a company financials for Karbon corporate purchase card application, we noticed that the company’s directors were directors of a public listed company, and they misled investors of that public listed company. To understand this, let’s call the public listed company PU and the private listed company PR, and their directors/promoters are common. In a particular quarter, the numbers of PU were low, and they did not want to show drop in revenues. To overcome this situation, the promoters put money as a loan in PR, generated an invoice from PU to PR, and then cleared invoice from PR using the money they earlier put as loan. This boosted number of PU, and everyone was happy. There is probably nothing illegal about this, but it did misled investors of PU.

On another review for corporate purchase card application, we noticed that company’s revenues went up over a year but the company turned from profit to loss . To understand why this happened, we went through all notes, and we realised that Other expenses jumped dramatically. On closer analysis, we realised that the company started paying significant consulting fees to its promoters, and hence the decline in profits. We do not mind company paying higher compensation to promoters, but it should not dramatically turn a profitable company to loss. Most banks, financial institutions, investors and even big suppliers look at top line and bottom line.

In conclusion, we want to say that company’s cash is not personal ATM, and one should not use company’s resources as their personal resources. You would not want to get all eggs of the golden goose today itself. If you respect company as an entity and use its resources wisely, the shares of the company would rise, and you would be handsomely rewarded.

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