In fact, looking at the annual reports of 13 listed companies in China's construction machinery industry in 2008, this phenomenon has almost become a "common problem."
Sany’s risky construction machinery industry is deeply affected by the macro situation. When the overall environment is good, the company's operating performance will rise sharply; once the fluctuations occur, construction machinery companies will be affected and their revenues will drop sharply. Moreover, such crises are most likely to be amplified in some large companies.
Take Sany Heavy Industry as an example. At the time of the industry boom in 2007, the company’s sales revenue increased by 75.52%, while the net profit growth rate reached 171.31%, which was more than double the increase in revenue. However, in 2005, under the influence of the country's macro-control and fixed asset investment scale, Sany Heavy Industry’s sales revenue dropped by 4.47%, and net profit also dropped by 33.92%, which is nearly 8 times of the decline in revenue.
Macroeconomic fluctuations and cyclical downturns in the industry can lead to a contraction in the buyer's market, and this pressure from sales can be transmitted to construction machinery companies, which can cause a large backlog of products.
The annual report data shows that the ratio of Sany Heavy Industry's inventory to total assets has long been as high as 20%. It was 21.57% in 2008, 20.96% in 2007, 25.21% in 2006, 25.40% in 2005, and 26.38% in 2004. The problem of high inventory seems to have lingered around it. High inventory will cause problems in the company's cash flow, which will lay a hidden danger for future development.
"If Sany wants to maintain a good operating condition, it must forge itself into a never-ending sales machine, because if there is a slight decline in sales, it will be conducted several times to net profit." According to the media reports, the normal situation Next, if we can speed up sales, companies will receive a large amount of funds to return, cash flow will generally be more abundant, asset-liability ratio will continue to decline, the company's inventory, accounts receivable and other asset turnover will also accelerate.
Indeed, Sany Heavy Industry made a reverse decision in 2005 to increase sales.
The data shows that the company's decision-making effect is obvious and has been praised by the industry as “a 30-fold increase in 8 yearsâ€, of which nearly 80% is achieved after 2005.
However, the above media pointed out that the asset-liability ratio of Sany Heavy Industry has remained high, and the cash flow from operating activities of enterprises has not increased. At the same time, since 2005, the proportion of inventory of the company in operating costs has been declining year by year, while the increase in accounts receivable has not been small.
Among them, the accounts receivable in 2007 grew by more than 157% from 2006. Our reporter found from the company’s newly released 2008 annual report that in 2008, on the basis of accounts receivable in 2007, it increased by 50.1% to reach RMB 3.1 billion, accounting for 22.21% of total assets.
“According to the normal revenue growth, if the sales policy remains unchanged, there should be a large amount of cash inflows and the company’s asset-liability ratio will decline.†The media judged that: In the context of fierce competition in the construction machinery industry, the advantages between enterprises are not obvious. However, Sany Heavy Industry has no choice but to risk increasing sales revenues to reduce inventory ratios by selling credits, providing more favorable sales conditions (longer payback period, down payment ratio, etc.).
The article concludes by pointing out that Sany’s practice has not achieved its goal in terms of improving asset turnover. Only a slight reduction in the proportion of inventory was realized, but the increase in accounts receivable was received, which was of little significance to the overall asset turnover. Selling credit means taking more risks. Once the purchaser has problems that cannot be paid, the company will have to withdraw its full amount of bad debts, thereby increasing the company's management expenses and ultimately reducing the company's profitability.
“This model has no problem during the period of economic growth. Once there is industry fluctuation, this risk will be doubled.â€
It is not a single case that the time of peace and danger in times of peace.
The China Industry News reporter made a number of statistics on the remaining major listed engineering machinery companies, and four companies announced the proportion of the company's inventory in 2008 to total assets. Among them, Shantui shares are 24.69%, Anhui Heli is 27.75%, Xugong Technology is 31.35%, and Shanhe Intelligence is 32.42%. In addition, six companies announced the year-on-year increase in inventory in 2008: Shantui shares was 2.32%, Changlin shares was 13.85%, Liugong was 35.92%, Shanhe intelligence was 44.84%, Dingsheng Tiangong was 52.65%, Zoomlion. It is 96.50%.
It can be seen that the international financial crisis that broke out in the second half of 2008 caused a certain degree of inventory increase for most construction machinery companies.
According to statistics released on the year-on-year growth of accounts receivable, Shantui shares were -4.8%, Sanhe Intelligence was 3.41%, Xugong was 15.07%, Liugong was 31.75%, and XGM was 49.95%. Zoomlion For 119.73%, only one account receivable from Shantui declined.
The explanation given by most companies for the increase in inventory and accounts receivable is: "Sales increase."
Although no Sany Heavy Industry is so obvious, it can be seen from the above two sets of data that during the period of fluctuations in the industry, many companies try to increase sales in order to survive. However, the increase in accounts receivable indicates that the company has made adjustments in sales methods.
In the case of little product differentiation, persuading the buyer to purchase the product requires more favorable conditions, such as good after-sales services, preferential payment methods, etc. Similar phenomena such as "zero down payment" and credit sales are actually nothing new.
A salesman of a well-known domestic construction machinery company, who declined to be named, told the reporter that “At present, the industry is in a sluggish state. In order to complete sales tasks, some companies will also sell the machines to users with poor credit ratings, and they use fairly favorable prices. Payment conditions, but because the user's current project is not sufficient, resulting in overdue payments, and even run away from the phenomenon often occurs, but to the enterprise caused losses."
He half-jokingly said: "If more and more such things, it is the subprime mortgage crisis of the construction machinery industry."
Industry insiders told reporters that in fact, such risks and hidden dangers are obvious and exist for a long time. Only if the industry situation is not optimistic, it will be reflected. Whether this hidden danger will evolve into a crisis depends on the trend of the macro economy in the second half of this year. In addition, according to the "three-yearly adjustment," the construction machinery industry has entered a cyclical adjustment is a factor that must be considered.
The personage inside the industry reminds us that what we should also see is that China's construction machinery companies lack long-term core technology, most of the cost of products is spent on importing key components, and the profits of enterprises are squeezed to a very small space; secondly, China has not yet The formation of a large-scale construction machinery manufacturing group with international influence has resulted in weak bargaining power when purchasing raw materials, which has also led to further dilution of corporate profits. Construction machinery companies need self-salvation, focusing on innovation and breakthroughs in key technologies, timely adjusting industrial structures and development strategies, preparing for danger in times of peace, and doing the worst.
Sany’s risky construction machinery industry is deeply affected by the macro situation. When the overall environment is good, the company's operating performance will rise sharply; once the fluctuations occur, construction machinery companies will be affected and their revenues will drop sharply. Moreover, such crises are most likely to be amplified in some large companies.
Take Sany Heavy Industry as an example. At the time of the industry boom in 2007, the company’s sales revenue increased by 75.52%, while the net profit growth rate reached 171.31%, which was more than double the increase in revenue. However, in 2005, under the influence of the country's macro-control and fixed asset investment scale, Sany Heavy Industry’s sales revenue dropped by 4.47%, and net profit also dropped by 33.92%, which is nearly 8 times of the decline in revenue.
Macroeconomic fluctuations and cyclical downturns in the industry can lead to a contraction in the buyer's market, and this pressure from sales can be transmitted to construction machinery companies, which can cause a large backlog of products.
The annual report data shows that the ratio of Sany Heavy Industry's inventory to total assets has long been as high as 20%. It was 21.57% in 2008, 20.96% in 2007, 25.21% in 2006, 25.40% in 2005, and 26.38% in 2004. The problem of high inventory seems to have lingered around it. High inventory will cause problems in the company's cash flow, which will lay a hidden danger for future development.
"If Sany wants to maintain a good operating condition, it must forge itself into a never-ending sales machine, because if there is a slight decline in sales, it will be conducted several times to net profit." According to the media reports, the normal situation Next, if we can speed up sales, companies will receive a large amount of funds to return, cash flow will generally be more abundant, asset-liability ratio will continue to decline, the company's inventory, accounts receivable and other asset turnover will also accelerate.
Indeed, Sany Heavy Industry made a reverse decision in 2005 to increase sales.
The data shows that the company's decision-making effect is obvious and has been praised by the industry as “a 30-fold increase in 8 yearsâ€, of which nearly 80% is achieved after 2005.
However, the above media pointed out that the asset-liability ratio of Sany Heavy Industry has remained high, and the cash flow from operating activities of enterprises has not increased. At the same time, since 2005, the proportion of inventory of the company in operating costs has been declining year by year, while the increase in accounts receivable has not been small.
Among them, the accounts receivable in 2007 grew by more than 157% from 2006. Our reporter found from the company’s newly released 2008 annual report that in 2008, on the basis of accounts receivable in 2007, it increased by 50.1% to reach RMB 3.1 billion, accounting for 22.21% of total assets.
“According to the normal revenue growth, if the sales policy remains unchanged, there should be a large amount of cash inflows and the company’s asset-liability ratio will decline.†The media judged that: In the context of fierce competition in the construction machinery industry, the advantages between enterprises are not obvious. However, Sany Heavy Industry has no choice but to risk increasing sales revenues to reduce inventory ratios by selling credits, providing more favorable sales conditions (longer payback period, down payment ratio, etc.).
The article concludes by pointing out that Sany’s practice has not achieved its goal in terms of improving asset turnover. Only a slight reduction in the proportion of inventory was realized, but the increase in accounts receivable was received, which was of little significance to the overall asset turnover. Selling credit means taking more risks. Once the purchaser has problems that cannot be paid, the company will have to withdraw its full amount of bad debts, thereby increasing the company's management expenses and ultimately reducing the company's profitability.
“This model has no problem during the period of economic growth. Once there is industry fluctuation, this risk will be doubled.â€
It is not a single case that the time of peace and danger in times of peace.
The China Industry News reporter made a number of statistics on the remaining major listed engineering machinery companies, and four companies announced the proportion of the company's inventory in 2008 to total assets. Among them, Shantui shares are 24.69%, Anhui Heli is 27.75%, Xugong Technology is 31.35%, and Shanhe Intelligence is 32.42%. In addition, six companies announced the year-on-year increase in inventory in 2008: Shantui shares was 2.32%, Changlin shares was 13.85%, Liugong was 35.92%, Shanhe intelligence was 44.84%, Dingsheng Tiangong was 52.65%, Zoomlion. It is 96.50%.
It can be seen that the international financial crisis that broke out in the second half of 2008 caused a certain degree of inventory increase for most construction machinery companies.
According to statistics released on the year-on-year growth of accounts receivable, Shantui shares were -4.8%, Sanhe Intelligence was 3.41%, Xugong was 15.07%, Liugong was 31.75%, and XGM was 49.95%. Zoomlion For 119.73%, only one account receivable from Shantui declined.
The explanation given by most companies for the increase in inventory and accounts receivable is: "Sales increase."
Although no Sany Heavy Industry is so obvious, it can be seen from the above two sets of data that during the period of fluctuations in the industry, many companies try to increase sales in order to survive. However, the increase in accounts receivable indicates that the company has made adjustments in sales methods.
In the case of little product differentiation, persuading the buyer to purchase the product requires more favorable conditions, such as good after-sales services, preferential payment methods, etc. Similar phenomena such as "zero down payment" and credit sales are actually nothing new.
A salesman of a well-known domestic construction machinery company, who declined to be named, told the reporter that “At present, the industry is in a sluggish state. In order to complete sales tasks, some companies will also sell the machines to users with poor credit ratings, and they use fairly favorable prices. Payment conditions, but because the user's current project is not sufficient, resulting in overdue payments, and even run away from the phenomenon often occurs, but to the enterprise caused losses."
He half-jokingly said: "If more and more such things, it is the subprime mortgage crisis of the construction machinery industry."
Industry insiders told reporters that in fact, such risks and hidden dangers are obvious and exist for a long time. Only if the industry situation is not optimistic, it will be reflected. Whether this hidden danger will evolve into a crisis depends on the trend of the macro economy in the second half of this year. In addition, according to the "three-yearly adjustment," the construction machinery industry has entered a cyclical adjustment is a factor that must be considered.
The personage inside the industry reminds us that what we should also see is that China's construction machinery companies lack long-term core technology, most of the cost of products is spent on importing key components, and the profits of enterprises are squeezed to a very small space; secondly, China has not yet The formation of a large-scale construction machinery manufacturing group with international influence has resulted in weak bargaining power when purchasing raw materials, which has also led to further dilution of corporate profits. Construction machinery companies need self-salvation, focusing on innovation and breakthroughs in key technologies, timely adjusting industrial structures and development strategies, preparing for danger in times of peace, and doing the worst.
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