5. Short-term Liquidity
Short-term liquidity indicates the ability to pay due debt of an entity. Proper analysis of short-term liquidity provides us an
insight of the operation and performance of an entity. For Gree, we selected some representative indicators including working
capital, current ratio, quick ratio, conservative quick ratio and cash ratio and compare them with those of Haier and the industry
average in order to present an overall evaluation of short-term liquidity.
CurrentRatio= Total CurrentAssets/Total CurrentLiabilities
Quick Ratio= (CurrentAssets-Inventories)/CurrentLiabilities
6. Peer Comparison
1.04 1.10 1.12 1.08 1.08
1.48 1.26 1.21 1.27 1.30
2.85
3.89 3.85
3.16 2.86
0.00
1.00
2.00
3.00
4.00
5.00
2009 2010 2011 2012 2013
Current Ratio Comparison
current ratio of Gree
current ratiio of Haier
average current ratio
0.90 0.87 0.85 0.86 0.94
1.28 1.07 0.98 1.04 1.12
2.42
3.38 3.26
2.60
2.33
0.00
1.00
2.00
3.00
4.00
2009 2010 2011 2012 2013
Quick Ratio Comparison
quick ratio of Gree quick ratio of Haier
average quick ratio
High Leverage&High Profitability Strategy
Bank-initiative Short-term Loan
Stable Relationship with Suppliers
High Quality of Accounts Payable
8. The Debt to Assets Ratio
a. Comparison with historical data
declining
more than 70% (40% and 60%)
high level of debt, more risk for creditors
b. Comparison with Haier and Industr
Average
Gree>Haier>Industry average
More than 60%
enough confidence to pay debts
Gree should debt more reasonably.
2009 2010 2011 2012 2013
Gree 79.33% 78.64% 78.43% 74.36% 73.47%
Haier 49.98% 67.58% 70.95% 68.95% 67.23%
Industry Average 45.53% 37.67% 36.42% 37.96% 39.70%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
TheDebttoAssetsRatio
9. Times Interest Earned
a. Comparison with historical data
The interest charges of Gree are negative, so interest income is larger than interest
expense in recent five years. In addition, in recent three years, the absolute value of
times interest earned is increasing, which means the support capability of interest is
strong.
Year 2009 2010 2011 2012 2013
GREE -33.8403 -15.3651 -12.9794 -17.9937 -92.8901
10. OPM Strategy
Management strategy: firms take full use of the large size to enhance its bargaining
power with suppliers and buyers
For the suppliers:
Extend the payment date of accounts payable which is no interest
Use the money to invest other projects
For the buyers:
Shorten the credit period of accounts receivable
Receive buyer’s partial payment in advance
By using these cash for expansion, the firm can further enhance the competitiveness
11. Analysis of Financial Leverage
High debt ratio of Gree Large debts especially current debts.
Financial expense is negative Interest revenue > Interest expense No
interest
Debt are mainly are accounts payable and unearned revenue
Thus, we can refer that the bargaining capacity of Gree with suppliers is strong
OPM strategy succeed
Although Gree maintain high debt ratio, thanks to good effect of the non-interest
debt strategy and OPM strategy, the financial risk can be controlled effectively.
13. 45%
55%
We can see clearly from the
chart that the inventory turnover
of GREE is little lower than the
industrial inventory turnover and
much lower than Haier’s, which
means Haier have lower
occupancy of assets level and
GREE’s inventory management
need to be improved. Besides,
Haier has high inventory turnover
because of JIT.
Inventory turnover
0
2
4
6
8
10
12
14
16
18
20
2009 2010 2011 2012 2013
Inventory
turnover
GREE
Inventory
turnover
Haier
Inventory
turnover
industry
14. 45%
55%
Accounts receivable
turnover of GREE is much
higher than that of
industry and Haier, which
is very outstanding. High
accounts receivable
turnover means its
inventory can be traded for
cash quickly, and the
quality of the current assets
is high (the current assets’
liquidity is good and the
bad debt loss is less).
Therefore, the profitability
is high.
0
10
20
30
40
50
60
70
80
2009 2010 2011 2012 2013
Accounts receivable
turnover GREE
Accounts receivable
turnover Haier
Accounts receivable
turnover industry
Accounts receivable turnover
15. Gross profit
margin
It measures the
relative
profitability of
the firm’s sales
after the cost of
sales has been
deducted
Profitability
Net profit margin
It measures how
profitable a
company’s sales
are after all
expenses,
including taxes
and interest,
have been
deducted.
ROA
It measures the
overall
profitability of
all assets, and it
is an important
index in the
evaluation of
asset operation
efficiency.
ROE
It measures the
rate of return
that the firm
earns on
stockholders’
equity
16. In recent
years, GREE has an
increasing trend in
gross margin ratio,
which shows the
profitability is
increasingly
strengthen. Maybe
GREE have taken
actions to increase its
sales and control the
cost of sales.
10%
20%
30%
40%
2009 2010 2011 2012 2013
Gree
Haier
Average
Gross Profit Margin
17. As we can see
from the chart, the net
profit margin of GREE is
obviously above Haier’s.
It may be the negative
financial expenses that
increases the EAT, which
means GREE’s financial
structure contains high
proportion of current
liabilities, especially the
non-interest liabilities like
accounts payable.
0%
2%
4%
6%
8%
10%
12%
2009 2010 2011 2012 2013
Gree
Haier
Average
Net Profit Margin
18. 0%
2%
4%
6%
8%
10%
12%
14%
2009 2010 2011 2012 2013
Gree
Haier
Average
We can see that Haier’s
ROA is higher than
GREE’s, showing its
assets operation is more
effective than GREE and
GREE needs to enhance
sales ability and cut down
the inefficient investment
project.
ROA
19. We can find that the
ROE of GREE and
Haier is larger than the
industry average. The
higher the ROE is, the
higher the level of
protection of investors
is. So GREE should
maintain this trend to
keep good profitability.
0%
10%
20%
30%
40%
2009 2010 2011 2012 2013
Gree
Haier
Average
ROE
22. Text1
Text2 Text4
.
0
10
20
30
40
50
60
70
80
P/E Analysis
GREE
HAIER
AVERA
GE
Price-to-Earnings Ratio=
Both GREE and Haier are below the
industry average. There are some
reasons:
Firstly, GREE’s high financial leverage
makes the investors feel unsecure.
Secondly, in order to achieve rapid
growth of revenue and profit, there must
be considerable capital spending. It will
bring unknown risk and investors don’t
have confident of GREE.
Thirdly, as the top of the industry,
GREE has a high EAT so that it has a
high EPS which may make its P/E lower.
Marketed-based Ratio
23. Dividend Policy
ROE
2009 2010 2011 2012 2013
Gree 32.26% 19.74% 26.88% 40.49% 41.55%
Haier 34.92% 6.58% 16.97% 30.38% 30.03%
Industry Average 35.92% 36.91% 37.52% 47.06% 35.32%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
45.00%
50.00%
payoutratio
The payout ratio of
GREE is higher than Haier
but lower than industry. We
find that earning per share of
GREE is so high, comparing
with Haier and industry.
GREE’s dividend
per share is also higher than
Haier. GREE Company may
take the high earning and high
dividend policy. We think both
GREE and Haier are in a
steadily increasing condition.
Payout
24. Comprehensive Financial Analysis
In this part , we will use DuPont analysis for GREE
company to analyze the financial ratio in a
comprehensive way.
We make use of the internal relationship between each
financial ratio evaluate the company.
DuPont analysis is based on the ROE ratio, which
indicates the profitability, operating, capital structure of a
company.
25. Return on Equity
30.83%
Return on
investment
8.18%
Net profit
margin
9.22%
Earnings after
Tax
10,935,755,177.1
9
Total operating
revenues
120,043,070,00
5.50
Sales
118,627,948,20
8.59
Other operating
revenues
1,415,121,796.91
Total operating
costs
109,487,926,14
2.16
Cost of Sales
80,385,939,822
.61
Other operating
costs
27,394,050,849.6
8
Other
revenues
2,336,780,08
1.98
Income taxes
expenses
1,956,168,768.
13
Sales
118,627,948,20
8.59
Total Asset
Turnover
88.73%
Sales
118,627,948,20
8.59
Total Assets
133,702,103,359
.54
Equity multiplier
3.77
Debt ratio
73.47%
Total Debt
98,235,425,674.
76
Total Assets
133,702,103,35
9.54
Current Assets
103,732,522,181.
91
Cash
38,541,684,47
0.83
Marketable
Securities
1,246,106,661
.88
Accounts
Receivables
1,849,275,342.
79
Inventories
13,122,730,425
.78
Other Current
Assets
48,972,725,28
0.63
Non-current
Assets
29,969,581,177.
63
DuPont Analysis for Gree
2013
26. From the view of capital structure, the portion of liabilities keeps
going down. The increasing rate of asset is larger than liabilities
From the view of operation, the total assets turnover ratio is
steadily going down, which demonstrates the increasing rate of asset
is larger than sales. We may draw a conclusion that assets utilization
is low because the sales should keep pace with the increasing rate of
the assets.
From the view of the profitability, we find that the financial
expenses is negative, which indicates the interest revenue is larger
than interest expenses. We contribute the negative financial expenses
to the high level of current liabilities (especially the Accounts
payable) which has low interests expenses. Also, GREE Company
often invest in a lot of fields, which give it more interest revenues.
27. According to the financial ratio analysis all above, we can
see that the capital structure and the profitability is in a relatively
steady condition. The short-term liquidity of GREE is a little weaker
than Haier, which is based on the different policy of two company.
GREE lays stress on the high leverage policy so that the debt ratio is
much higher than the benchmark and the average industry. But I
don’t think that GREE is in danger. GREE is the top of the
appliance industry and it is confident of its liquidity. High leverage
makes the utilization more flexible. Here, we’d like to share some
suggestions about GREE Company.
Conclusions
28. Suggestions
The scale of the loan can be expanded befittingly. When computing
liquidity indices, we can get a debt ratio around 80%, which is theoretically high.
But take a close look at the balance sheet, notes payable, accounts payable and
advances from customers make up 60% of the liability. Large amount of
commercial credit indicates high ability of commercial credit financing. Similarly,
considerable amount of short-term loan also shows GREE’s favorable credit around
banking dealers. And only 5% of the liability is long-term, which reduces the
interest risk and assures sustainability.
According to previous DuPont Analysis, the larger the proportion of the debt, the
larger the equity multiplier. In the way, the entity can obtain higher ROE. Thus, the
scale of GREE’s loan is acceptable only if it takes full account of operating and
financing risk.
29. Suggestions
The profitability of GREE company shows that the net
profit margin rate and gross margin rate is lower than industry and Haier.
We may conclude that the portion of EAT in sales is low which means the
expenses and costs is so large. GREE Company must pay attention to the
large expenses and it may make full use of the ABC system or other
method of management to control the expenses in a relatively reasonable
level.
30. Suggestions
Operation capacity of GREE still has room for growth.
From the analysis of operation capacity, we can conclude that operation
capacity of GREE needs to be strengthened. All in all, the turnover rates
except accounts receivable turnover rate are lower than Haier’s.
Therefore, GREE’s utilization efficiency of assets needs to be enhanced,
through boosting the selling capacity, using JIT, expanding demand and
enhancing the company’s popularity, to become a leader in air-condition
market.
