CASE GOWEX

1. Introduction 

The company is in the telecommunications industry, its headquarters are in Madrid. The
initial financing came from government. It owns many subsidiaries. The president is Jerano
Garcia. 

In this monopolistic market Gowex also offers wireless roaming platforms that provide users
an interconnection of fixed, mobile and wireless carriers.The company’s services include
local, domestic, long distance and international internet and telephone services as well as
an internet access through ISDN or WI FI networks. However, Gowex generates revenues
from 2 pillars: telecommunication and wireless business segment. 

2. A glimpse at GOWEX

In 2013: Gowex made a foray into the US telecommunication market and launched its Wi-Fi
solutions in New York, San Francisco, Miami and Chicago. Gowex also launched a new line
We2, a social Wi-Fi project opening doors for millions of users beyond the public locations
(by cooperating with leading telecommunication operator in the whole world) and
strengthening the company’s business model.

The hotspots are categorized into 3 types: namely in cities (the majority around 80%), by
franchises or in transportation. Company’s aim: provide good quality service and maintain
high international standards in the field of privacy, security and data protection. 

From 2011 to 2013 there were many important agreements

 2011: Strategic Agreement in China with CRSCS (second China railway
engineering) 
 2011: 15 transportation companies with 2 billion passengers 
 2012: Agreements signed with important cities e.g Dubai,Paris, Dublin or Marseille. 
 2012: Agreement signed for roaming on both national and international level 
 2012: Agreement with Skype
 2013: Agreement signed with the Republic of Congo, Belgium and reaches also –
Barcelona, Edinburgh

Since 2010, Gowex started changing the accounting process with the highlight on
making company’s financial information clearer and more understandable when reading or
analyzing. Gowex has a growing sustained hiring policy together with labor and financial
equality among all their workers.

3. Industry
This industry has a high level of competition. The share price of these companies has had
important fluctuations in the last 5 years. The competitors of Gowex have decreased their
share price, on the other hand Gowex’s share prices increased rapidly from 0.73 to 19.91 in
a period of five years.  

4. Financial statement analysis

The company has increasing operating revenue overtime as the sales (agreements with
different countries and cities -> increase in demand) increased a lot. Moreover, COGS is
increases, but relatively less, over the years, which means that the company decreased the
costs of production (raw materials..). However, we can observe that the gross profits’
percentage is increasing. There is not a huge change in financial revenues, neither
expenses. In conclusion, the net income of Gowex increased compared to the years
before. 
The fixed assets increase due to the increase in tangible assets (maybe they buy more
buildings, land,  equipment, etc). However, current assets decrease over the years as the
company decreased cash and cash equivalent, and the company does not have stock
(0%). 

Around 50% of the assets are financed by the shareholders’ funds. NCL increased due to
the increase in Long term debts (maybe to finance the increased in NCA). However they
maintain the CL in a low level. 
 Ratios
Current ratio:
CA/CL= 2.5 ->
higher than 1.5 -
good signal
Liquidity: CA -
INV/ CL = 2.5 ->
higher than 1
Debt: total liabilities / liabilities + equity = 0.41 -> should be higher
Quality: CL / TL = 0.59 -> more than half is CL

Profitability analysis
ROE = net profit/ equity = 0.30
Financial leverage = A/E * EBT/EBIT = 1.74 -> higher than 1 = debt is profitable

PART B

Fraud: manipulation on accounts so as to Gowex could go public and issue shares.

SeaSunTel represents Gowex largest customer and supplier, but it is secretly controlled by
Gonzalez Javier Martin (from Gowex). Most transactions between these two companies are
round-trip transactions (transactions that lack economic substance). Panel Consulting S.L,
Gowex’s second largest customer, as well as Line Informatica are also secretly linked to
Gowex CFO, Francisco Manuel Martinez Marugan.

A majority of agreements appeared to be false or not valid anymore. For example, Gowex’s
claim that China is one of the biggest markets for company appears to be false. 
Engineering revenues are no more than 10% of the 40 million. Advertising is less than 10%
than reported. Networking (roaming + offloading) is at most 10% than declared.

One of the factors that gives credibility to a company  the auditor company it works with.
Prices of Gowex’s share price decreased by 60%. It is clever move to have a company
listed in a stock exchange in order to appear more reliable.