Chu Wang Yi Yun Wu An
(School of Accounting, Shanghai University of Finance and Economics 200433)
First, the research purpose
The profitability of listed companies has always been a very sensitive issue, because it relates to the interests of investors, creditors and other stakeholders, so it is very important to evaluate the profitability of companies reasonably. At present, the indicators used to evaluate the profitability of listed companies mainly include net profit, return on net assets, earnings per share, return on total assets and sales profit rate. These indicators evaluate the profitability of listed companies from different angles, which are comprehensive, but there are also obvious defects.
The cash flow person who can't reflect the profit, that is, can't reflect the profit quality of listed companies. Undoubtedly, if there is no cash flow, profits will not only be distributed, but also affect the quality of assets and mislead investment decisions. Therefore, using the actual data of listed companies, this paper aims to further reveal the quality of profitability of listed companies through the comparative analysis of relevant profitability indicators, that is, whether there is enough cash guarantee for profitability and whether there is a common false problem of accrual-based profitability.
At the same time, a reasonable profit quality evaluation method is put forward to improve the investment decision-making level of investors.
Second, the analysis method
(A) the meaning of profitability and profitability quality
Profitability and profitability quality reflect the profitability of enterprises from different angles, each with its own emphasis. Profitability emphasizes the ability of enterprises to obtain income, based on accrual basis, which is manifested in the size of net income after tax and the size of related ratio; The quality of profit reflects whether the confirmation of profit is accompanied by the corresponding cash inflow, that is, whether the profit based on accrual basis is accompanied by cash outflow. Only the profit with cash flow has higher quality, which is reflected in the difference between the relevant profit index values calculated by accrual basis and the profit index values calculated by cash basis. Generally speaking, the smaller the price difference, the higher the profit quality.
Design of empirical indicators
According to the previous definitions of profitability and profitability quality, profitability quality can be evaluated by the difference between accrual basis and cash basis, so the evaluation of profitability quality is related to cash, and the composition of profitability quality evaluation indicators should reflect the characteristics of cash flow. The quality of profit mainly depends on whether profit is accompanied by the inflow of cash. If there is a synchronous increase in cash, the profit is guaranteed by cash, and the profit quality is high, otherwise the profit quality is low. There are many indicators to reflect profitability by cash flow: cash flow from business activities, cash received from selling goods and providing services, cash received from dividends or profits, cash received from bond interest income, etc. These indicators have their own advantages in reflecting profitability. However, these indicators are based on cash basis and cannot be directly compared with those based on accrual basis. Therefore, if we want to link these profit indicators based on cash basis with those based on accrual basis, we should construct indicators that are comparable to those based on accrual basis, such as return on net assets, that is to say, the meaning of comparison indicators has not changed, but the relevant values should be those in the cash flow statement. The meaning of these indicators is similar to that under accrual basis, but the value is converted into cash flow. Through the comparative analysis of these indicators, we can find the problems existing in the profitability of listed companies at present.
With regard to the design of indicators to evaluate earnings quality, this paper designs four groups of comparative indicators by comparison method, which are arranged in the following order: return on net assets (ROE), earnings per share (EPS), return on total assets (RQA) and sales profit rate (see the table below for details). It is divided into two categories: the first category is calculated by adjusting the relevant items in the cash flow statement, and the second category is calculated directly by using the relevant items in the cash flow statement. The reason for this classification is that although China has promulgated the cash flow statement standard, its specific composition is still different from international accounting standards, accounting standards of the United States and Britain. In China's cash flow statement, the cash received from dividends or profits and the cash received from bond interest income are not regarded as cash inflows from operating activities, but listed in investment activities; Pay-as-you-go interest and financing expenses are listed in financing activities, but not in cash outflow from operating activities. These items are reflected in net profit, which affects the comparability between net profit and cash flow from operating activities. Therefore, the first four indicators of this paper have adjusted the cash flow of operating activities, taking the received dividend or profit cash and the received bond interest income cash as the added items of the cash flow of operating activities, and taking the paid cash interest and financing expenses as the shrinking items of the cash flow of operating activities, so as to calculate the net profit and cash flow of operating activities. The caliber tends to be consistent and comparable, so as to objectively evaluate the profit quality of listed public blindness, and the last four indicators are directly calculated without adjustment.
Profitability index
Cash system
accrual system
Comparative indicators (cash basis-accrual basis)
Return on common shareholders' equity
(Cash flow from operating activities+dividend or profit cash+bond interest cash-interest cash-financing expense cash)/shareholders' equity
Net profit/shareholders' equity
firewood
Cash flow per share and earnings per share
(Cash flow from operating activities+dividend or profit cash+bond interest cash-interest cash-financing expense cash)/share capital
Net profit/share capital
CHA2
Profit rate of total assets
(Cash flow from operating activities+dividend or profit cash+bond interest cash-interest cash-financing expense cash)/total assets
Net profit/total assets
CHA3
Operating gross profit
(Cash flow from operating activities+cash from dividends or profits received+cash from bond interest received-cash from interest paid-cash from financing expenses paid)/cash from goods sold and services provided.
Net profit/main business income
CHA4
Return on common shareholders' equity
Cash flow from operating activities/shareholders' equity
Net profit/shareholders' equity
CHA5
Cash flow per share and earnings per share
Cash flow from operating activities/equity
Net profit/share capital
CHA6
Profit rate of total assets
Cash flow from operating activities/total assets
Net profit/total assets
CHA7
profit on sales
Cash flow from operating activities/cash received from selling goods and providing services.
Net profit/main business income
CHA8
Comparatively speaking, the first four indicators are more objective and the last four indicators are easier to understand. The difference between these eight comparative indicators is defined as CHAl, CHA2…CHA8 (the same below), so if the difference is regular, it means that the profit is guaranteed in cash and the profit quality is good, otherwise it is poor.
(3) Evaluation criteria of profit quality
When evaluating the profit quality of listed companies with the above eight indicators, if the indicators are positive, it means that the profit confirmed by accrual basis has cash guarantee and the profit quality is good; If the indicator is negative, it means that the profit recognized by accrual basis lacks cash guarantee and the profit quality is poor. But the profit quality can't be evaluated by one or two indicators, so this paper divides the profit quality into three levels: (1) All eight indicators are positive, and the profit quality is good; (2) Eight indicators are positive and negative, and the profit quality is average; (3) All eight indicators are negative, and the profit quality is poor. And use this standard to evaluate the profit quality of listed companies in China.
Third, sample selection.
The sample of this paper is divided into two parts:
(1) 266 listed companies whose cash flow statements were first published in 1998 were selected as samples. Because Hongqiao Airport (Mitsuki-June) and Hangzhou Iron and Steel Co., Ltd. (March-June) are not comparable, after excluding these two companies, 264 listed companies were finally determined as official samples. Since the company's net assets are negative, its net profit is negative and its return on net assets will be positive, the absolute value of net assets will be taken when calculating the return on net assets. 264 companies accounted for 32.5 1% of the 8 12 listed companies reported in the announcement 1998, of which only 1 company was unaudited. From this point of view, the credibility and representativeness of the sample are trustworthy.
(2) Select the release year as of April 30th, 1999.
The reported 868 listed companies are samples, 7 companies have not published their cash flow statements, and the remaining 86 1 companies have all disclosed their cash flow statements, with 86 1 company as the official sample. At this time, the samples are more representative, and all of them have been audited, with high credibility. Take the absolute value of the net assets of Baiyunshan (0522) to avoid the confusion in the calculation of the return on net assets. In the cash flow statement, for Shenzhen Development Bank (000 1) and Anshan Trust (6008 16), the cash received from selling goods and providing services is replaced by the loan interest received and the recovered medium and long-term loans.
Four. Research results and analysis
(1) Overall result
edge
CHA 1
CHA2
CHA3
CHA4
CHA5
CHA6
CHA7
CHA8
1998
interim report
Negative statistical quantity (series)
192
192
192
185
19 1
19 1
19 1
179
Proportion (%)
72.7
72.7
72.7
70. 1
72.7
72.3
72.3
67.8
Maximum position clearance
13
average value
189
1998
annual report
Negative statistical quantity (series)
608
609
609
620
549
550
550
564
Proportion (%)
70.6
70.7
70.7
72.0
63.8
63.9
65.5
Maximum position clearance
7 1
average value
582
Judging from the above statistical results, among the 264 listed companies that published the cash flow statement in 1998, on average, 189 listed companies have the problem that the profit confirmation is not synchronized with the cash inflow, accounting for 7 1.59% of the 264 listed companies. According to conservative calculation, there are 179 listed companies, and at most 192 listed companies have the problem that cash inflow lags behind profit recognition. In the annual report of 1998, the average cash inflow of 582 companies lags behind profit recognition, accounting for 67.60% of 86 1 company, slightly lower than 7 1.59% of the interim report. Judging from the proportion of eight indicators, except CHA4, the negative ratio of the other seven indicators still declined. This result reflects that a series of accounting standards promulgated by China last year have played a certain role in practice, especially the provisions on the recognition of assets reorganization income in Document No.66 of the Ministry of Finance, which further narrowed the space for listed companies to manipulate profits.
(2) Statistical analysis
(1) proportional analysis
project
All indicators are positive.
There are positive and negative indicators.
All indicators are negative.
total
1998 interim report
Quantity (family)
67
2 1
176
264
Proportion (%)
25.38
7.95
66.67
100
1998 annual report
Quantity (family)
2 16
122
523
86 1
Proportion (%)
25.09
4 1. 17
60.74
100
The above table shows that among the 264 Chinese listed companies in 1998, 66.67% have poor profit quality, while 25.38% have good profit quality, while there are few intermediate listed companies, and the profit quality is polarized. From the comparison between the annual report of 1998 and the declaration, we can see that the profit quality has improved, specifically, the proportion of positive and negative indicators has increased from 7.95% to 14. 17%, with an increase of 6.22%, and the proportion of all negative indicators has decreased from 66.67% to 60.74%, with a decrease of 5.99. The proportion of all indicators that are positive remains basically unchanged; It also reflects that the profit quality of listed companies in China is poor and in a state of polarization.
In 1998, eight indicators of 189 companies are all negative, and eight indicators of 176 listed companies are all negative, accounting for 93. 12% of 189 companies and 66.64% of 264 companies. In the annual report of 1998, there are 523 listed companies with all eight indicators negative, accounting for 60.74% of 86 1 company, which is lower than 66.67% of the interim report, and the profit quality has improved. However, it also shows that the profit quality of listed companies is not optimistic. Among 86 1 companies, 523 companies' profit confirmation is seriously lagging behind, and there is a certain problem of profit manipulation.
In the interim report of 1998, the indicators of 2 1 listed companies are neither all negative nor all positive. We found that this type of listed companies are relatively few, accounting for only 7.95% of 264 companies. To a certain extent, this shows that the profit quality of listed companies in China is in this state: either all indicators are negative or all indicators are positive, and there are few positive and negative situations, that is, the profit quality is in a state of polarization. At the same time, it also shows the effectiveness of evaluating profit quality with the above eight indicators. In the annual report of 1998, there are 122 listed companies, of which 122 accounts for 86 1 company.
The company 14. 17% is higher than the interim report, but it still reflects that the profit quality of listed companies in China is in a state of polarization.
1998 reports that there are 67 listed companies with positive eight indicators, which shows that the profits of these 67 listed companies are guaranteed by cash and the profit quality is good, but such companies only account for 25.38% of 264 companies, with a low proportion. At the same time, nearly three-quarters of listed companies lack cash guarantee to varying degrees, and the profit quality is low. There are 265,438+06 listed companies with positive eight indicators in the 65,438+0998 annual report. These 2 16 companies account for 25.09% of 86/kloc-0 companies, which is basically the same as the 25.38% of the interim report, which further proves that nearly three-quarters of listed companies lack cash barriers to some extent and their profit quality is low.
(2) Average analysis
The following table shows the average values of 8 indicators:
CHA 1
CHA2
CHA3
CHA4
CHA5
CHA6
CHA7
CHA8
1998 interim report
-0.0444
-0. 1599
-0.03 13
-0.4374
-0.0302
-0. 1266
-0.0266
0.4938
1998 annual report
0.00 1 1
-0. 1853
-0.0355
-0. 14 17
0.03 13
-0. 1236
-0.024 1
-0. 1094
In the interim report of 1998, excluding the influence of extreme value of deep development, CFlA4 is -0.80998, CH cabin excluding the influence of extreme value of deep development, cfla 4 is -0. 124526. After the above adjustment, we find that the average values of the eight indicators are all negative, which generally reflects that the cash inflow of listed companies in China lags behind the profit recognition. This shows that the profit quality of listed companies in China is not ideal and there is a problem of profit manipulation. There is no cash guarantee for profit, which restricts the development of listed companies. In 1998 annual report, CHM and CHM are positive, and the rest are negative, which is better than the interim report, but the profit quality has not improved obviously. At the same time, it can be seen that listed companies pay more attention to the return on net assets, especially some special treatment companies. 198 is among the top 20 THM indicators in the annual report, and 14 is a special treatment company.
(C) Analysis of the relationship between profit quality and accounts receivable
The increase of accounts receivable is not necessarily the result of profit manipulation. There are many reasons for the increase of accounts receivable, such as the change of credit sales policy and the increase of asset scale. We can't draw the conclusion of profit manipulation through the increase of accounts receivable. However, if the ratio of the increase of accounts receivable (including bills receivable) to the main business income is positive, then does this kind of listed company have profit manipulation? This paper makes an in-depth analysis of this. Taking 86 1 companies in the annual report of 1998 as the research object, excluding 30 companies (Hong Kong and Macao industries with unpublished opening balance sheets and negative main business income), taking 83 1 companies as the research object.
There are 540 companies whose main business income is greater than 0, accounting for 64.98% of 83/kloc-0 companies. The specific statistical results of these 540 companies are as follows:
As can be seen from the above table, the average profit quality of these 540 companies is low, and there may be some profit manipulation. After further analysis of 378 companies with negative 8 indicators, it is found that the average return on equity of 378 companies is diluted.
Eight comparative indicators
amount
proportion
Sample proportion
According to this calculation, there should be a quantity.
edge
All positive.
97
17.96
25.09
135(540×2 16/86 1)
-38
Positive and negative
65
12.04
14. 17
77(540× 122/86 1)
- 12
Are all negative
378
70.00
60.74
328(540×523/86 1)
50
total
540
100
100
540
Calculation) is 1 1.35%, while the total sample of 83 1 company is 3.06%. It can be seen that these companies use accounts receivable (including bills receivable) to inflate profits, and because there is no corresponding cash inflow, all eight indicators are negative. Among the 378 companies, there are 3 companies whose ROE (diluted calculation) is less than 0, 47 companies whose ROE (diluted calculation) is between 0 and 6%, and 378 companies whose ROE (diluted calculation) is greater than 6%, accounting for 86.77% of the 378 listed companies. According to shanghai securities news (1May 6, 1999), 1999 has 134 listed companies, of which 75 companies (accounting for 55.97% of 134 companies) belong to the above-mentioned 378 companies, which shows that domestic companies planning to issue shares manipulate profits.
(D) Analysis of profit quality of loss-making listed companies
Of the 86 1 companies that published their annual reports on 1998, 77 companies suffered losses. The analysis of its profit quality shows the following results:
Eight comparative indicators
amount
proportion
Sample proportion
Calculate the quantity according to the sample.
edge
All positive.
60
77.92
25.09
19(77×2 16/86 1)
4 1
Positive and negative
12
15.59
14. 17
1 1(77× 122/86 1)
1
Are all negative
five
6.49
60.74
47(77×523/86 1)
-42
total
77
100
100
27
As can be seen from the above table, the profit quality of loss-making listed companies is higher than the overall level of the sample, reflecting that the profit quality of loss-making listed companies in China is better. Generally speaking, the quality of loss and profit should change in the opposite direction, but the above results change in the positive direction. Are there any other deeper reasons? According to the Company Law of People's Republic of China (PRC), listed companies will be punished by suspending their stock listing if they have suffered losses for three consecutive years. After that, if you still can't turn losses into profits within the time limit and no longer meet the listing conditions, you will eventually be punished for terminating its stock listing. Once a listed company is specially treated, suspended or even terminated due to losses, its managers, investors, creditors and other stakeholders will suffer losses. At the same time, in China, at present, the stock issuance system is adopted, and social idle funds are relatively abundant, and a large number of enterprises are eager to restructure and go public. The "shell" resources of listed companies are expensive, but if they are specially treated, suspended or even terminated because of losses, this precious "shell" resources will be lost or greatly discounted, and the resulting losses can be imagined. Therefore, it can be inferred that the managers of listed companies will have a strong motivation for profit management, in order to avoid losses as much as possible or to avoid losses for three consecutive years, in order to escape the punishment and treatment of relevant laws and regulations. When the company has incurred losses, it will try its best to avoid losses for three consecutive years, which will lead these listed companies to adopt accrual accounting with significantly reduced profits within one or two years, completely deal with all potential losses in previous years, and predict future expenses as much as possible, thus reducing later expenses and laying the foundation for turning losses into profits. This kind of accounting treatment is allowed by the current accounting standards and accrual basis. On the other hand, under the accrual basis, predicting some losses or selling more expenses is often considered as the product of the conservatism principle, which will not attract the attention of certified public accountants and is not easily understood by external information users. Such accounting treatment inflated the loss (reduced the profit) to a certain extent, but the cash flow did not decrease correspondingly, so the difference between the cash basis index and the accrual basis index increased or even was positive. For example, ST Shenhua Bao (0034) 1998 lost 551820,000 yuan, and the company said in its annual report that the company handled the bad debt loss according to the relevant provisions of the Accounting System for Joint-stock Companies 197357966. 78 yuan, inventory depreciation loss 12 1677042.30 yuan, long-term investment loss 14723879.38 yuan, land acquisition and demolition loss 374 15262.35 yuan, housing reform loss186803/. The Board of Directors believes that the handling of the above accounts conforms to the principle of seeking truth from facts and handling according to law. It can be seen that the company disposed of the "burden" of 424 million yuan at one time and found a legal basis. If so, then the water that was profitable in previous years.
You can imagine the size of the points. In 1998, such a large loss was dealt with at one time, which not only made it lose money but also eroded the share capital of that year, so it was treated specially. If the loss of 424 million yuan is not dealt with, its profit will still be-1.25438+0 billion yuan, but it will not erode the equity. Therefore, it can be considered that the company's treatment is a reverse manipulation of profits under the protection of relevant laws and regulations: that is, more expenses or losses are included under the accrual basis, with the aim of reducing the expenses in the following years and laying the foundation for turning losses. However, this treatment rarely attracts the attention of relevant parties, and is often regarded as the embodiment of conservative principles, which should be paid enough attention to.
(E) Further analysis of the return on net assets
We generally use the return on net assets (R dumb) to measure the profitability of enterprises. China stipulates that the average return on net assets of listed companies for three consecutive years is 10% (not less than 6% every year), which is the main condition for obtaining the qualification of rights issue. For those companies whose return on equity has been above 6% for two consecutive years, the return on equity in the third year is particularly critical, and whether the three-year average reaches 10% is the key to sustainable financing in the capital market. But it also brings difficulties to correctly evaluate the profitability of listed companies. In order to continue financing in the capital market, a considerable number of listed companies manipulate profits and break through the lifeline of 10%.
Some listed companies often carry out so-called "asset restructuring", the main purpose of which is to achieve the requirement of return on net assets 10%. Because there is a certain degree of profit manipulation motivation, the corresponding cash flow does not necessarily increase with the increase of profits, so the profitability of enterprises should be re-evaluated from the perspective of cash flow. According to statistics, as of August 22nd, there were 2 12 listed companies, 1998 (this information came from china securities journal, 10, August 30th, 0998), among which 12 1 companies had audit reasons. This 12 1
The company's eight indicators are shown in the following table:
project
amount
proportion
Sample proportion
CHA 1
CHA5
CHA 1 and CHA5
Quantity due (calculated according to CHA 1
edge
Are all negative
87
7 1.90
66.67
94
94
93
88( 12 1× 192/264)
six
There are positive and negative ones.
eight
6.6 1
7.95
2
All positive.
26
2 1.49
25.38
27
27
26
33( 12 1×72/64)
-6
total
12 1
100
100
12 1
12 1
12 1
12 1
Note: In the annual report of 1998, CHIA 1 of 92 listed companies is negative, and CHAI of 72 listed companies is positive.
As can be seen from the above table, among 12 1 listed companies, 87 listed companies are all negative in eight indicators, accounting for 7 1.90% of12/company. For listed companies that are about to issue shares, the return on net assets is more important. There are 94 companies with all negative CHA 1, 94 companies with all negative CHA5, and 93 companies with both negative CHA1. According to the negative ratio of 192 listed companies CHA 1,121x192/264 listed companies have 88 (12 192/264). It seems that the return on equity (CHAl) of listed companies that are about to issue shares is lower than that of other listed companies. From the previous analysis, we know that 66.67% of the 264 listed companies are all negative in eight indicators, and the profit quality is not good, while 765,438+0.90% of the listed companies are all negative in eight indicators. This fully shows that the profit quality of listed companies about to issue shares is lower than that of other listed companies. According to shanghai securities news (1May 6, 999), 1999 has 134 listed companies planning to issue shares. This paper makes the same analysis on this 134 company, and its conclusion is the same as the previous one.
Same as above, see the table below for details.
project
amount
proportion
Sample proportion
CHA 1
CHA5
CHA 1 and CHA5
Quantity due (calculated according to CHA 1
edge
Are all negative
97
72.39
60.74
108
99
99
95( 134×608/86 1)
13
There are positive and negative ones.
13
9.70
14. 17
nine
All positive.
24
17.9 1
25.09
26
35
26
39( 134×253/86 1)
- 13
total
134
100
100
134
134
134
134
Verb (abbreviation of verb) Limitations of this article
1. Sample selection is not comprehensive enough. Only 264 companies in the interim report of 1998 and the annual report of 86 1 were selected, with only two issues, which were not very comprehensive;
2. Because China Cash Flow Statement 1998 was first disclosed, it is impossible to select the previous annual data as samples for time series analysis, which is one-sided;
3. There are many indicators reflecting profitability, and this paper only chooses a few of them for comparative study, which has certain limitations;
Although the accounting reports of listed companies have been audited, it does not rule out that enterprises have made mistakes and some incomparable factors due to various reasons when preparing accounting reports.
Conclusion and suggestion of intransitive verbs
Through the multi-angle analysis of the profit quality of listed companies in China, we can draw the following conclusions and put forward corresponding policy suggestions:
1. At present, the problems existing in the earnings quality of listed companies in China mainly lie in the unsynchronized earnings acquisition and cash inflow, and there are certain earnings manipulation behaviors. The empirical results show that in the interim report of 1998, on average, 7 1.59% of listed companies' cash flow lags behind the confirmation of profits, and all eight indicators of 176 listed companies are negative, accounting for 66.67% of 264 companies. In the annual report of 1998, the average cash inflow of 67.60% listed companies lags behind the confirmation of profits, and all eight indicators of 523 listed companies are negative, accounting for 60.74% of 86 1 company. The quality of profit has improved compared with that of the interim report, but it is also in a polarized situation. Nearly three quarters of the companies have poor profit quality, and nearly 60% of the companies have poor profit quality.
2. Due to the lack of cash guarantee in profit recognition, listed companies are short of cash, so they try to continue financing in the capital market regardless of the pressure of equity dilution.
3. In order to achieve the purpose of continuous financing, listed companies that intend to issue shares manipulate profits to make their return on net assets meet the specified requirements, which is easy to mislead investment decisions;
4. The reverse profit manipulation of loss-making companies (that is, excessive resale of expenses or losses to achieve losses in the future) should be noticed, and relevant supervision needs to be strengthened;
5. The rights issue condition has only one profit index, which is easy to be manipulated by listed companies. It is suggested that the weighted average of several indicators or indicators should be adopted, and the cash flow requirements should be reflected at the same time, so as to prevent listed companies from obtaining the rights issue qualification by manipulating profits.
Main references
1 Ge Jiapeng on cash flow consolidated statement, accounting monthly report,1998; five
2 Research on the Relationship between Earnings Management and Earnings Information after Forest Listing Accounting Research Monthly,No. 15 1.
3 Li Shuang, Yang Li, cash flow analysis-from the Southeast Asian financial crisis, accounting research,1998; six
4. Lu Demin, Discussion on some problems of cash flow statement. Audit research.1998;
5 Tang, Qian, Accounting Theory, Shanghai: Shanghai University of Finance and Economics Press 1997.
6 Zhou Zhengqing, editor-in-chief, A Reader of Securities Knowledge, China Financial Publishing House, 1998.
7 Chen Zhigu and Zhang, Asset Management and Restructuring, Shanghai: Shanghai University of Finance and Economics Press, 1998.
8 Lu Jianqiao Empirical Study on Earnings Management of Loss-making Listed Companies in China, Doctoral Dissertation, 1998