The Riddle of Wanda Real estate debt ratio: the debt of prepayments should not be ignored

The prospectus submitted by Dalian Wanda Commercial Real Estate Co., Ltd. (hereinafter called "Wanda Real Estate") showed that its balance-sheet rate was only 49% at the end of 2013, and its asset-liability ratio at the end of June 2014 was 52%. Real estate industry has always been a highly indebted industry, Wanda Real estate debt rate so low? Deduction of received accounts the author inspected the prospectus of Wanda Real estate and found that in the definition of its asset-liability ratio, the amount of advance account was deducted from the liability. "The asset-liability rate is calculated by multiplying the value of the assets (excluding customer advances) by the total assets by 100%" (Prospectus P377), "our customer advances mainly include proceeds from pre-sale" (P363), and it follows that their customer advances refer to the amounts received in advance. According to the assets and liabilities data disclosed by the prospectus of Wanda Property, if the total amount of liabilities is not deducted from the advance account, the assets and liabilities rate of Wanda Real estate at the end of 2013 and June 30, 2014 are up to 74% and 78% respectively. This level of debt ratio and Vanke a (000002.SZ) debt ratio is roughly equivalent. It is worth mentioning that the investment property of Wanda Real estate is measured by market value, and its carrying assets contain a huge increase in commercial real estate, and if the investment property is measured by historical cost, its debt rate is much higher than that of Vanke a. It is not the first of Wanda Real estate to deduct the received accounts from the liabilities. In recent years, China's real estate industry has formed a popular view: The receivable account is not a liability, in the calculation of the balance of assets from the debt deduction. Some agencies and media have also calculated the debt ratio of real estate companies. However, in the prospectus, it is the first to calculate the asset-liability ratio by deducting from the liabilities the amount of the account. The index of asset-liability rate disclosed in the real estate listed companies in the A-share market still includes the outstanding account in its debt, such as Vanke A's 2013 annual report disclosed that its balance-sheet ratio was 78%, and did not deduct from the debt the outstanding accounts. However, "2013 Business Performance and analysis" in this statement: "At the end of 2013, the company excluded from the outstanding accounts of the total assets of the proportion of 45.54%". The long overdue account is not the debt of the real estate enterprise's advance account? If it is not debt, then what is it? In the balance sheet, the receivable account is shown under the current liabilities of the enterprise. For the real estate enterprises with large amount of advance accounts, if the received account is excluded from the liability, then the accounting identity "assets = liabilities + owner's equity" will no longer be established, so that the calculated balance-sheet ratio will lose its due significance. Still take Wanda property as an example, June 30, 2014, the total amount of its book assets of 504 billion yuan, total liabilities of 391.4 billion yuan, owner's equity of 112.6 billion yuan. The total amount of assets deducted from the total liability of 131.1 billion yuan from the amount of liabilities is 260.3 billion yuan, the sum of which will be greater than that of liabilities and owners ' equity. The prepaid account is the payment, deposit, etc., which the accounting enterprise has submitted to its customers by contract. andIn the case of operational liabilities such as payables, the received account is a debt that does not need to be paid in cash, and in comparison with interest-bearing liabilities such as bank loans, the receivable is usually a liability that does not require interest. But in essence, the advance payment is still a debt, the enterprise needs to be in accordance with the contract, timely delivery to the customer the corresponding goods (labor). The real estate enterprise needs to deliver the commercial housing to the customer according to the contract stipulation period, and confirms the commercial housing sale income accordingly; If the real estate business does not have enough funds for the construction of the corresponding commercial housing projects, then the real estate business will be broken by the capital chain caused the project rotten tail, the enterprise may be plunged into bankruptcy dilemma. As a result of the pre-sale system of commercial housing in China, real estate companies carry large sums in advance. Real estate enterprises so deducted, the main reason is that real estate enterprises and the corresponding real estate project sales settlement completed, the amount of advance accounts will become 0, enterprises do not need to pay cash settlement. However, in fact, the construction of real estate projects with the received account will still have to be invested, to the completion of the project settlement period, the management costs, financial costs and other period costs, pay business tax, urban construction tax, land value-added tax, education fees and other taxes. When project sales are settled, the corresponding inventory will be carried over to the sales cost and the total assets will be reduced accordingly. Simply deduct the received account from the total liability, and to calculate the ratio of assets and liabilities, on the one hand, did not take into account the real estate projects related to the follow-up construction capital expenditure and period costs, tax expenditures, underestimate the liability of the enterprise; On the other hand, after the project is settled, it is carried forward to sales revenue and liabilities decrease , the corresponding inventory will also be carried over to the cost of sales, the company's assets are correspondingly reduced, thus overestimating the total assets of the enterprise, which will seriously underestimate the assets and liabilities ratio. Personally, if the real estate business in advance accounts of high, and sales gross margin, sales net profit high, from the maximum use of funds, in the calculation of the asset-liability ratio, in order to deduct from the debt, then, should be at the same time to consider the assets and liabilities related to the advance account changes. may wish to use the concrete data to give an example: Suppose a real estate enterprise total assets 10 billion yuan, the total liability is 8 billion yuan, among them, in advance accounts 3 billion yuan, its ratio of assets and liabilities is 80%; If the receivable account is simply deducted from the liability, the asset-liability ratio is 50%. In that case, whether the balance sheet calculated from the total amount of the outstanding liabilities can reflect the financial situation of the enterprise. Assuming that the enterprise of 3 billion yuan in the corresponding commercial housing has been completed, to reach the delivery, settlement conditions, we may wish to look at its corresponding with the advance accounts of all sales of commercial housing settlement completed, the account is zero in the balance of assets and liabilities. Assuming that the company's sales gross profit margin of 40%, the net sales rate of 20%, then 3 billion yuan in advance account of the book inventory of 1.8 billion yuan (30x60%), all sales can achieve a net profit of 600 million yuan (30x20%), its related period cost, main business tax, income tax is 600 million yuan (30-18-6). Then, with 3 billion yuan in advance of the real estate projects related to the full realization of sales, the receivable account is zero, the inventory is reduced by 1.8 billion yuan, the owner's interest (unallocated profit) increases by 600 million yuan, accounts payable, the taxable tax increases by 600 million yuan (assumes the debt which is related to the project sale settlement is not paid in cash, thus forms accounts payable, Tax payable). After the sales settlement, the total assets of the enterprise is 8.2 billion yuan (100-18), the total liability is 5.6 billion yuan (80-30+6), the total owner's equity is 2.6 billion yuan (20+6). At this time, due to the items related to the advance account has been all sales settlement, the total amount of the received account is zero, in the calculation of the asset-liability ratio, whether to exclude the advance accounts, the ratio of assets and liabilities has no impact. According to the above data can be calculated, the enterprise's asset-liability ratio of 68.29%. It can be seen that even if the enterprise and the received account of the commercial housing has all reached completion status, its project all sales settlement after the asset-liability rate is also as high as 68.29%, rather than directly from the total amount of outstanding debt from a simple deduction of 50%. If the commercial housing related to the advance account has not been completed, it is necessary to continue to invest capital construction, then the assets and liabilities rate will be higher after the completion of the project. Suppose that the balance of the carrying stock of the commercial housing is 500 million yuan, to achieve the completion of the state still need to continue to invest 1.3 billion yuan, the assumption is to pay 300 million yuan in cash, generate accounts payable 1 billion yuan, in this case, the total completion of the project after settlement of the assets and liabilities status is as follows: The total assets of the enterprise is 9.2 billion yuan (82+ 13-3), the total liabilities amounted to 6.6 billion yuan (56+10), the total owner's equity amounted to 2.6 billion yuan, and its asset-liability ratio was 71.74%. The above cases show that if real estate projects related to the prepayments are still under construction, the subsequent construction will still have to pay cash or increase the debt. Even if the project has been completed and reached a deliverable state, the relevant tax will be incurred in the process of sales settlement, which shall be paid in cash or increased due to liabilities such as taxes, accounts payable, etc. In the case of sales settlement, the total amount of assets of the company will decrease as the receivable account is reduced and the inventory associated with it is reduced due to carry-over to the cost of sales. When the real estate enterprise calculates the balance ratio, simply deduct the amount received from the total liability, regardless of the related inventory, accounts payable, taxes and other assets and liabilities, such as the change in advance accounts, which will lead to balance sheet imbalance (Assets > liabilities + owner equity), It is of no practical significance to underestimate the asset-liability ratio of an enterprise significantly. But the advance account is not a debt, and in China real estate has become a popular point of view. This fallacy can be popular only because of the high debt rate of Chinese real estate enterprises, and the pre-sale system of domestic commercial housing, and its liabilities in advance accounts are very high. In order to beautify and gloss over the financial indicators, the total amount of the outstanding debt will be deducted directlyBesides, it is a great invention of Chinese real estate business. Personally, this can only be used to deceive creditors and stock investors, but the real estate business do not even have their own fooled, if the real estate developers deceive themselves, in the preparation of capital plans, ignoring the relevant projects with the advance payment of funds demand, it is likely to boomerang, into financial crisis. In recent years, some real estate developers blind expansion, capital chain broken news frequently exposure. Unless the real estate business is prepared to run and go bankrupt when it is not ready to deliver commercial housing, it should not disregard the debt of prepayments in the preparation of funds.