Analysis of Traditional Profit Quality and Suggestions for Improvement

Analysis of Traditional Profit Quality and Suggestions for Improvement

The analysis of profit quality is complicated, involving the analysis of balance sheet, income statement and cash flow statement. Some methods will use the growth or decline trend of accounts receivable, the share of accounts receivable, the proportion of cash sales and the profit rate of main business to analyze the profit quality of enterprises. The following is the traditional profit quality analysis and improvement suggestion paper I compiled for you, hoping to help you.

In recent years, many enterprises have been forced to close down because of cash flow problems or even breaks, although the profits on the statements are very high. Therefore, strengthening cash flow analysis is very important for enterprises to improve profit quality. This paper expounds the unique advantages of using cash flow to measure the profit quality of enterprises, points out the shortcomings of traditional general methods, and reveals the significance of cash flow to the profit quality of enterprises.

Keywords: profit quality cash flow index analysis

I. Introduction

In recent years, major financial fraud cases have been frequently reported at home and abroad. They just want to whitewash the profits and make the published statements very high, but the actual profit quality and profitability are not necessarily good, because there are serious defects and deficiencies in the simple accounting profit indicators based on accrual basis. Therefore, strengthening the management and analysis of cash flow and mastering the feasible index system that can comprehensively evaluate the profit quality of enterprises from many angles through the beautiful statements of enterprises have become the problems that investors and even the whole capital market need to solve in a healthy and orderly development.

Second, the defects of traditional profit quality analysis indicators

1, the traditional profit quality analysis method

The analysis of profit quality is complicated, involving the analysis of balance sheet, income statement and cash flow statement. Some methods will use the growth or decline trend of accounts receivable, the share of accounts receivable, the proportion of cash sales and the profit rate of main business to analyze the profit quality of enterprises.

The factors that affect the quality of corporate earnings include financial risks faced by enterprises, differences in revenue recognition modes, correlation between reported earnings and corporate performance, asset structure and quality, growth, corporate internal governance and so on. When we analyze profitability, we usually start from the perspective of profitability. As mentioned above, profitability is based on accrual basis, and the static analysis of the profitability of enterprises is mainly manifested in the size and related proportion of profits. At present, the traditional indicators of profitability quality analysis mainly include net profit, return on total assets, return on net assets and sales profit rate.

The calculation method of each index is as follows:

Return on total assets = net profit/average total assets? 100%

Return on equity = net profit/average net assets? 100%

Sales profit rate = total profit/operating income? 100%

Take the data of Neptune 20 13 as an example. Table 1 is part of the financial data of Neptune Biological Co., Ltd. in 20 13 and 20 12.

From this, we can calculate the above indicators, Neptune Biological Co., Ltd. 20 13:

Return on total assets = 229313650.93/[(8019242139.7+5863516482.67)/2]? 100%=3.3%

Return on net assets = 229313650.93/[(188007375.01+105697947.03)/2]? 100%= 16%

Sales profit rate = 348,337,846.4/7994,3971.65? 100%=4.36%

Generally speaking, the higher the results of the above indicators, the better the profitability of enterprises. According to the above calculation results, we can see that the net profit of Neptune Bio-enterprise in 20 13 is more than 220 million yuan, while that of return on total assets is 3.3%, the return on net assets is 16%, and the sales profit rate is 4.36%. It can be seen that enterprises have certain profitability, and the quality of profitability should not be bad. But is the quality of profit really good? In Table 2, we can see from the cash flow statement of the enterprise that the net cash flow of 20 13, especially the net operating cash flow, is negative and the net profit is positive, which shows that the enterprise has unrealistic profits, or there are many accounts receivable, and most of the profits have not yet arrived. At this time, the profit quality is low, which is prone to serious payment crisis. It can be seen that it is difficult to make an objective and true evaluation of the profit quality of enterprises only by traditional indicators.

2. Defects of traditional indicators

The traditional indicators for analyzing the quality of earnings are basically based on profits. For a long time, financial management theory holds that accounting profit is one of the most valuable and core financial indicators, which can not only fully reflect the past business performance of enterprises, but also predict the future value of enterprises to some extent. A large number of actual case data show that not all bankrupt enterprises can't continue to operate because of profit losses. For example, Enron, Grant and Yinguangxia in China are still bankrupt under the condition of continuous profit, which is enough to show that profitable companies are not necessarily profitable.

(1) Accounting profit is not the enterprise's? Real benefits? . Profit is the product of the enterprise's final operating results by adopting accrual basis in accounting and following the principle of matching. Accrual basis means that all the current income or expenses that should be recognized are treated as current income and expenses regardless of whether the money is received or paid. The ratio of confirmation and expense is subjective, and managers with specific interests have room for manipulation, which is not conducive to reporting real results. Under the situation of tight capital chain, high-profit enterprises often fall into the crisis of paying back debts because of too many accounts receivable.

(2) There is considerable room for manipulating corporate profits. Many enterprises will reduce costs and increase income for various reasons, or use other business profits and non-business profits to make up for the main business profits, thus whitewashing the overall profit situation. Such a large operating space can easily give creditors and investors the illusion.

Third, the improvement of traditional profit quality analysis indicators.

1, introducing cash flow information.

Cash flow is an important concept in modern financial management, which refers to the total amount of cash inflow and outflow generated by enterprises in economic activities, and the amount of cash and cash equivalents inflow and outflow in a certain accounting period. The disclosure of cash flow information is helpful for investors to predict the future cash flow of enterprises, and cash flow is very useful for the analysis of enterprise profit quality. Under the extremely fierce market economy, if an enterprise wants to gain a firm foothold, it should not only try to sell its own products, but also recover the sales money in time to ensure a certain cash flow before it can carry out other business activities.

In addition, we know that cash flow is the blood of the enterprise, and it circulates in every link of the enterprise from beginning to end. The expansion of enterprises can not be separated from the support of cash. In the process of daily production and operation, from money to goods, and then from goods to money, cash flow also plays a connecting role in the middle, which is the driving force of enterprise production and operation. Cash flow determines the risk tolerance of an enterprise. Only when the cash inflow and outflow in each production cycle are recycled can enterprises be able to pay and repay debts, thus resisting various risks and enhancing the confidence of creditors and investors, so as to survive continuously.

2. The unique advantages of cash flow indicator analysis.

When analyzing the financial situation of an enterprise, it is far from enough to rely only on the return on net assets, return on total assets and other indicators, but also depends on whether the profit of the enterprise has enough cash guarantee. The cash flow statement reverses the situation that traditional financial analysis only focuses on accrued information, and organically combines the information under the cash basis with it to make up for the shortcomings of traditional methods. It has certain advantages and feasibility to analyze the profit quality of enterprises with cash flow indicators.

(1) more accurately reflects the real situation of enterprise profits.

The traditional profit quality analysis system is to measure the profitability of enterprises with indicators such as net interest rate of total assets and sales profit rate. The calculation of enterprise profits is based on the accounting system, and profits are easily affected by human factors. Therefore, to a certain extent, the accounting profits of enterprises have quality problems.

Cash flow is confirmed on the basis of cash basis, which can gain insight into earnings manipulation and report whitewashing, and effectively restrict the management's regulation and control of profits. This makes up for the deficiency of accrual basis in determining accounting profit. Therefore, only by combining the traditional accounting earnings information with cash flow information can we effectively improve the shortcomings and defects of the traditional profit quality analysis system and make it more accurately reflect the real situation of enterprise profits.

(2) It can better measure the performance and strength of enterprises.

The growth of an enterprise cannot be separated from the support of sufficient cash flow. If an enterprise has sufficient cash, we can speculate that its business contact will not be suddenly interrupted, and we can better seize the opportunity of development, put excess cash into valuable new projects, and have no pressure to pay and repay debts, so that we can calmly arrange the capital structure and avoid risks.

(3) make the cash management and profit management of enterprises better combined.

From the data attached to the cash flow statement, it can be found that profit is the main source of net cash flow from operating activities, just like the hematopoietic cells of cash flow blood of enterprises, while the cash flow from fund-raising activities and investment activities is only the external blood vessels of enterprises, so cash flow management and profit management are closely related, and cash flow management and profit management can be better combined through the assessment of cash flow indicators.

3. The importance and significance of cash flow to enterprise profit quality analysis.

From cash flow, we can see the profit quality and market value of an enterprise. Cash flow can better reflect the profit quality of an enterprise than profit. Its inflow and outflow is the real change of enterprise assets. Its stock is easy to check and verify, and the data source is more reliable, which reduces the possibility of bad debts of enterprises and emphasizes the liquidity of inventory goods and the recovery of enterprise investment. Cash flow is the main reference index for enterprises to make decisions and allocation decisions. If there is no substantial profit, even if there is a book profit, the quality of cash inflows will be greatly reduced. Enterprises not only can't allocate, but also have asset quality problems, which will form financial risks, affect decision makers and even directly threaten the survival of enterprises. In addition, investors can see the real situation of the enterprise through cash flow information and fully understand the investment value of the profitability of the enterprise. Therefore, the analysis of enterprise profit quality should pay full attention to the enterprise cash flow reflected in the enterprise cash flow statement.

refer to

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