11 gem companies have to gloss over the suspicion of profit

Lu Guihua where to look for the traces of profit whitewash?　　It is both my duty and my strength to help our loyal readers to easily understand the complex world we are in, through simple examples that simplify complex problems. How to find traces of surplus manipulation?　　Here we may wish to look at a simple example: Suppose a commodity retail enterprise, the commodity price is 6 yuan, the price is 10 yuan, the purchase 50 goods all sold in this period, the purchase payment all expenses, the sales paragraph all receives, assumes does not have the income tax and other income and expenditure. Obviously, the company's sales revenue and operating activities cash inflow are sold at 10 yuan X Sales 50 = 500 Yuan. The company's sales costs and operating activities cash outflow are 6 Yuan x Purchase Volume 50 = 300 yuan.　　So the net profit of the Enterprise = Sales Income 500 yuan-sales cost 300 Yuan = 200 yuan, the enterprise's operating activities cash net flow = Inflow 500 yuan-outflow 300 yuan = 200 yuan.　　In short, when the purchase of all the goods sold, and the sale of all received, the purchase of all payments, the net profit must be equal to the net operating activities cash flow. Let's take a look at more practical situations, we still assume that the price is 6 yuan, the price is 10 yuan, the purchase of 50, other cases are as follows: (1) If only paid 150 yuan, operating cash outflow 150 yuan, accounts payable will increase by 150 yuan; (2) If only 40 items are sold, Then the end of the inventory will be increased by 10 pieces, add 10 x6 yuan = 60 Yuan; (3) Sales cost = 40 x price 6 Yuan = 240 yuan, sales revenue = 40 pieces x Price 10 Yuan = 400 yuan, regardless of income tax, net profit =400-240=160 Yuan; (4) If only 200 yuan is received,　　Operating activities cash inflow of 200 yuan, accounts receivable will be increased by 200 yuan, operating activities net cash flow = Inflow of 200 yuan-outflow 150 yuan = 50 yuan. Why make 160 yuan Profit, net cash flow is only 50 yuan? The problem is obvious: first, the accounts receivable increase by 200 yuan, occupies the cash 200 yuan. Second, the inventory increases by 60 yuan, occupies the cash 60 yuan. The total amount of cash occupies 260 yuan. Third, the accounts payable increase by 150 yuan, saves the cash 150 yuan. However, due to the increase in accounts receivable and inventory accounted for 260 yuan, the total of three net reduction in cash 110 yuan, resulting in a profit of 160 yuan and cash only increased by 50 yuan.　　In short, we are not difficult to obtain: operating cash net flow of 50 Yuan = net profit of 160 yuan-accounts receivable increase of 200 yuan-the inventory increase of 60 Yuan + accounts payable increase of 150 yuan (1) will be a change in the above, that is: Net profit of 160 Yuan = operating cash net Flow 50 Yuan + accounts receivable increase of 200 Yuan + inventory increase of 60 yuan-accounts payable increase of 150 yuan (2) We put "accounts receivable increase + inventory increase-accounts payable increase", known as the net increment of operating capital, it is not difficult to get: net Profit =Net operating cash Flow + The formula shown in net increment of operating capital (3) (3) provides a basic clue to our search for profit manipulation. Clearly, the net flow of cash from operating activities is impossible to manipulate, to manipulate profits, only by manipulating accounts receivable, inventories and accounts payable, such as fictitious sales, increasing accounts receivable, increasing profits without affecting cash flow, not carrying forward sales costs, increasing inventories, increasing profits without affecting cash flow, omitting payables, reducing Increasing profits does not affect cash flow. Regardless of the specific means, the manipulation of profits will lead to a net increase in operating capital.　　We may wish to define the difference between net profit and net operating cash flows as Non-cash earnings, and we can measure the degree of profit manipulation by the ratio of net increase in operating capital to Non-cash profit, the higher the ratio, the greater the degree of profit manipulation and the likelihood of profit manipulation. Chart 1 reported some of the financial data of Jiuzhou Electric, we note that 2010 years ago three quarters, its operating activities cash net flow of 65.9 million yuan, if all sales received cash, purchase all pay cash, inventory level unchanged, net profit roughly and operating cash net flow is equivalent, Then the company is very likely to have a big loss. We note, however, that it has increased its receivables by about $125 million, an increase in inventories of $34.84 million, an increase of $47.73 million in Payables, and a net increase in working capital of 112 million yuan, which has made the company a 2010-dollar profit in the 3 quarter, and a net increase in operating capital as a percentage of Non-cash %, it also shows that the company's profitability is mainly attributable to the increase in operating capital.　　These indications, Kyushu Electric has a significant operating profit suspicion!　　11 Gem companies: Is there any suspicion of whitewashing profit? Chart 2 is a number of financial data calculated on the basis of the three quarterly report of 11 gem companies in 2010. It is not difficult to find that these companies operating capital accounted for Non-cash profit ratio, the lowest is Jiffeng agricultural machinery, for 35.86%, the highest is Meteno, reached 340.35%, 11 companies on average 118.62%.　　This shows that the net profits of these 11 gem companies depend to a large extent on the net increase in working capital, or, to a large extent, by the increase in accounts receivable and inventories or the decrease in accounts payable, which also suggests that these companies have a major suspicion of whitewashing profits!　　Why whitewash profits? Why do these companies gloss over profits? In the view of the general investors, the gem should be high performance, high growth, or to say that the gem is carrying people too much growth and profit expectations. As shown in chart 2, unfortunately, the 11 sample companies had an average return on net assets of 6.27% per cent in the 3 quarter 2010 years ago, compared to a year-on-year decrease in net asset returns of -17.05%!　　These companies have not only a sharp decline in the return on net assets, their main business profits are also down on average 18.46%! If these companies want to use profit manipulation to improve the return on net assets, improve the main businessProfit growth, then we should be able to observe that the lower growth rate of the main business of the gem, the more incentive to manipulate profits, its operating capital accounted for the ratio of Non-cash profit, the chart 3 just shows that our view is correct.　　Does this indicate that these companies are manipulating profits by increasing operating capital to boost the growth of their main business profits? If these companies want to increase the return on net assets through profit manipulation, we will observe that companies with lower net asset returns have a stronger incentive to manipulate profits, with a higher ratio of net increase in operating capital to Non-cash earnings. Chart 4 shows that the company's actions, once again by our unfortunate speech!　　Does this once again show that these gem companies manipulate profits through working capital to increase the return on net assets? We also note that our 11 sample companies have been reduced by some original shareholders after the lifting of the restricted shares, and we know that the performance is related to the stock price. Does this mean that these companies have the incentive to manipulate profits to maintain stock prices, thereby sheltering the original shareholders from reducing their holdings? We do not dare to speculate, we believe that the wisdom of investors will be correctly interpreted.　　The author suggests that for the large increase in operating capital, resulting in net profit significantly higher than the net operating cash flow of the gem company, to be more vigilant! (the author is a professor of Central University of Finance)