Step 3

Ratios – Commentary

“The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage.” Warren Buffet

This is an interesting concept where I have indeed had problems trying to decipher the information required. However, a way to decipher these ratios is to look at the example of waking up in the morning to your morning tea. We have our favourite blend of tea, favourite cup and how sweet we want to have it. What we do know in this is not all things go right or are the same? We find that we sometimes end up with a different cup, the blend of tea, the sweeteners and other ingredients. Financial ratios are much like the tea ingredients while the business purposes are like the desired taste we require from tea. Knowing the blend of tea, milk, sugar and teabags require under different circumstances and keep working through adjusting and making sure the result comes out at the desired level. Users of financial ratios have diverse objectives and each business needs to adjust in order to attain.

Working at analysing financial statements and seeing how ratios fit into the picture is just one of many methods that can assist us in analysing ratios. Using different methods will give us an understanding of the full picture of how a business is performing.

The adventure now begins. What a journey this going to be? Will China Outfitters Holdings be able to give me the information that I am needing to answer? Are there companies out there like mine? If I cannot find enough to evaluate will I look at what Chinese companies, I can make a comparison to. Lets go and delve and see what interesting information we can find.

Profitability Ratios

	2015	2016	2017	2018
Net Profit Margin	10.14%	4.81%	6.07%	6.77%
Return on Assets	5.43%	2.10%	4.65%	2.47%

The goal of any business is to earn profit. Ratios that measure profitability are usually those that the business reports to the press. Using the Net Profit Margin or (Rate of Return on Net Sales) a company aims for a high rate of return on net sales. The higher the rate of return the more sales dollars end up as profit. The decrease in China Outfitters Holdings Limited from 2015 to 2018 although higher than industry average of 1.7% shows that there has been a decline in apparel sales through its third-party outlets. The rate of return on total assets measures a company’s success in using it assets to earn a profit. Here it is seen that there are two groups that finance a company’s assets, these being: –

• Creditors have loaned money to the company and earn the interest on it
• Shareholders have invested in shares and their return is profit.

China Outfitters holdings Impairment losses on Financial Assets represented credit losses from trade Receivable. The company also pledged short-term deposits for issuance of bank acceptance notes.

Efficiency (Asset Management) Ratio

	2015	2016	2017	2018
Total Asset Turnover Ratio	62.41%	54.42%	52.91%	50.51%
Current Asset Turnover Ratio	64.03%	59.72%	75.48%	67.36%

My understanding of the Efficiency Ratio is where we can analyse how well a company will use it assets and liabilities internally. These ratios calculate the turnover of receivables, the repayment of liabilities, the quantity and usage of equity and the general use of inventory and machinery. Having an Efficiency Ratio of 50% or under is considered optimal. If the Efficiency ratio increases, it means that the company expenses are increasing, or its revenues are decreasing. The Total Asset Turnover Ratio of China Outfitters Holdings Limited has shown that it has a high asset turnover and therefore is using its assets efficiently. The ratio is effective in showing how many sales are generated from each dollar of assets the company owns.

Liquidity Ratio

	2015	2016	2017	2018
Current Ratio	2.19	2.16	3.87	3.88
Quick Ratio 1	1.53	1.68	2.84	2.98
Quick Ratio 2	1.26	1.42	1.94	2.37

Liquidity ratios are used to determine a debtor’s ability to payoff current debt obligations without raising external capital. Through this measure the company’s ability to pay debt obligations and its margin of safety through the calculation of metrics including the Current ratio, Quick Ratio and Operating Cash Flow Ratio.

The Current Ratio of China Outfitters Holdings limited shows that the firm prefers to have a high current ratio indicating that the current ratio has increased from previous period showing an improvement in the company’s ability to pay it currents debts. A rule of thumb shows that a strong current ratio above 1 is considered to be very good. The higher the ratio, the better the company’s liquidity position.

The quick ratio or Acid Test Ratio shows whether a company could pay all its current liabilities if they came due today. After checking China Outfitters Holdings Limited it can be seen that there is no issue with paying out its liabilities as the Quick Ratio for industry is acceptable (0.90 – 1.00) and this company is way above this.

Financial Structure Ratio

	2015	2016	2017	2018
Debt Ratio	45.66%	46.31%	25.81%	25.74%
Debt/Equity Ratio	44.97%	43.82%	19.64%	20.37%
Times Interest Earned	0.43	0.25
Equity Ratio	102.60%	109.73%	142.68%	133.34%

There are three key indicators for a company to pay non-current liabilities: – Debt Ratio, debt to equity ratio and times-interest-earned ratio.

The Debt Ratio is considered to be the comparison of total liabilities to total assets where it shows the proportion of a business’ assets that it has financed with debt. China Outfitters Holdings Limited shows that the company has a low debt ratio. Why? The company’s reports show that its liabilities are low therefore the company is likely to get in financial difficulty. What is seen here is that if the debt ratio is 25.74% in 2018 means that this percentage of only 25.74% of the assets are being used to finance the debt owed.

The Debt to Equity Ratio is seen as the relationship between total liabilities and total equity and shows the percentage of total liabilities comparative to the percentage of total equity that is financing the company’s assets. This is the ratio that measures the financial leverage of the company. If the debt to equity ratio is greater than 1 (100%) then the company is financing more assets with debt than with equity. If the ratio is less than 1 (100%) then the company is financing more assets with equity than with debt. The higher the debt to equity ratio the higher the company’s financial risk. When we review China Outfitters Holdings Ltd, we find that their ratio of debt to equity is less than one which shows that the company is financing more assets with equity than with debt.

What I have learnt here is that debt ratio and debt to equity ratio shows nothing about the ability for China Outfitters Holdings Limited to pay interest expense. This is where the times-interest-earned ratio comes into play as it relates to profit before interest and taxes (EBIT – earnings before interest and taxes) to interest expense. Times-Interest-Earned Ratio also known as Interest-coverage ratio is the ratio of profit before interest and taxes to interest expense and measures the number of times that profit can cover interest expense. A high ratio here indicates ease in paying interest expense; a low ratio suggest difficulty to pay. China Outfitters Holdings Ltd in 2015 and 2016 had little difficulty in servicing its debt and was able to pay its liabilities.

The Equity Ratio is an investment leverage ratio that measures the amount of assets that are financed by owner’s investments by comparing total equity in the company to the total assets. This where after all of the liabilities are paid off, the investors will end up with the remaining assets. The idea demonstrates how there are two important features to remember about the financial concepts of a solvent and sustainable business. The first one tells us that after all the liabilities are paid off, the investors will end up with the remaining assets and the second shows how the company has leveraged its debt. China Outfitters Holdings Ltd with its high equity ratio is able to draw new investors and creditors to it company and those investors in turn are willing to finance the investments.

Market Ratio

	2015	2016	2017	2018
Earnings per Share (EPS)	0.03	0.01	0.02	0.01
Dividends per Share (DPS)	0.03
Dividend Yield Ratio	0.98
Price Per Earnings Ratio	1.17	1.31	0.68	1.38
Net Asset Backing per Share Ratio	0.24	0.23	0.22	0.33
Market/Book Ratio	0.13	0.06	0.07	0.05

Note: China Outfitters Holdings Limited has not paid dividends to its shareholders since 2015. So, some Ratios associated with dividends cannot be calculated.

Market Ratios are used for the evaluation of current share prices of a publicly-held company’s stock. These ratios are employed by current potential investors to determine whether a company’s shares are over-priced or under-priced.

Earnings per Share (EPS) is the amount of profit that is earned for each company’s outstanding ordinary Shares. Usually most companies strive to increase EPS by 10-15% annually however China Outfitters Holdings Ltd looks like it needs to work on developing a plan to increase EPS so that it is more competitive with other companies. As China Outfitters Holdings has not provided any dividends per share since 2015 trying to find an answer here is a bit disappointing. If we were to work out the dividend yield ratio, we would work on how much to the total dividends were paid for the year and then divide by the market price. This would then provide the return investment to investors if they were to buy the shares at the current market price. Evaluating the Price per Earnings Ratio using the calculation of the current market price of a share and dividing by the reported earnings per share we would have a resulting multiple that can be used to see whether the shares are over-priced or under-priced in comparison to the same ratios of other companies. China Outfitters Holdings Ltd considered that their final dividends are recognised as a liability when they are approved by the shareholders in a general meeting. The board did not recommend declaring any final dividends for the years ended 31 December in 2016, 2017 and 2018.

Ratios – Restated Financial Statements

	2015	2016	2017	2018
Dividend Payout Ratio	115.55%	0	0	0

The Dividend Payout Ratio is where the ratio of dividends declared per ordinary share relative to the earnings per share of the company and measures the percentage of earnings paid annually, to ordinary shareholders as cash dividends. There have been no dividends paid since 2015 so to have an idea of what to do here is out of my control.

Return on Equity (ROE)

	2015	2016	2017	2018
Return on Equity (ROE)	31.39%	12.38%	28.73%	15.65%

How well is China Outfitters Holdings Limited using the equity to derive comprehensive income? This to me looks like and up and down effort. This could be due to the number of companies that the China Outfitters Holdings Ltd has made a joint-venture with during this time such as Henry Cotton’s China Limited Company which acts as the Groups operation Centre apparel business Henry Cotton’s which is accounted for using the equity method.

Return on Net Operating Assets (RNOA)

	2015	2016	2017	2018
Return on Net Operating Assets (RNOA)	7.85%	1.71%	8.27%	5.11%

In our study it showed us that once RNOA is greater than 8% the economic profit increases. However, what I found is that China Outfitters Holdings Limited has had a weird trend as it goes up and down over the years. This also could be due to company classifying some of their trademark companies such as London Fog, Artful Dodger, Zoo York and MCS as intangible assets with indefinite lives.

Return on Operating Assets (ROOA)

	2015	2016	2017	2018
Return on Operating Assets (ROOA)	5.97%	1.41%	6.65%	4.32%

What I see within this area is that ROOA is the return on China Outfitters Holdings Ltd assets without the effect of leverage whereas RNOA here includes the effect of the firms operating Liabilities.

Net Borrowing Cost (NBC)

	2015	2016	2017	2018
Net Borrowing Costs (NBC)	3.01%	2.46%	1.86%	-2.29%

Borrowing costs can be defined as the interest and other costs incurred by an enterprise in relation to the borrowing of funds. These are generally attributable to the acquisition, production or construction of a qualifying asset should be capitalized as part of the asset’s cost. China Outfitters Holdings Limited borrowing costs were associated with assets that take a substantial period of time to get ready for their intended use or sale and are capitalised as part of the costs of those assets. The capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

Difference between Profit Margins

	2015	2016	2017	2018
Profit Margin (PM)	6.28%	1.53%	6.80%	6.51%
Net Profit Margin	10.14%	4.81%	6.07%	6.77%

Definition of Profit margin is the proportion of money left over from revenues after accounting for profit whereas Net Profit margin is the percentage of net income generated from the company’s revenue. However, what we see in this scenario is that the decrease in 2018 in Profit Margin is due to the firm excluding inventory provisions which was mainly attributable to the increase in sales through outlet stores, bargain stores and online channels which have lower gross profit margins.

Leverage

	2015	2016	2017	2018
Operating Liability Leverage (OLLEV)	31.59%	21.68%	24.31%	18.28%
Financial Leverage (FLEV)	49.93%	48.51%	43.51%	64.36%
Operating Liability Leverage Spread (OLSPREAD)	0.97%	-3.59%	1.65%	-0.68%

Leverage is earning more income on borrowed money than the related interest expense, thereby increasing the profits for the owners of the business. Operational Leverage could be higher due to fixed costs being greater than variable costs. What we can gather is that the operating leverage is lower than the Financial Leverage therefore showing that high OLLEV could be the difference between the highs and lows of the losses and financial leverage is where it is the centre point of ROE and RNOA.

Difference between Asset Turnover (ATO)

	2015	2016	2017	2018
Asset Turnover (ATO)	1.25	1.12	1.22	0.78
Total Asset Turnover Ratio	0.62	0.54	0.53	0.51

Asset turnover is the ratio that measures the amount of net sales generated for each average dollar of assets invested. China Outfitters Holdings Gross Profit percentage was low, so the company has a high asset turnover. This was due to the number of joint ventures that the company has formed over the past five years.

Growth in Sales

	2015	2016	2017	2018
Growth in Sales	-7.45%	10.94%	1.81%	-2.18%
Growth in Operating Income		-78.34%	352.93%	-6.40%
Growth in Net Operating Assets		-0.77%	-6.08%	51.55%
Growth in Shareholders Equity		2.13%	4.73%	2.45%

This area has me totally baffled there is so much going on that I’m finding it hard to comprehend. Growth in sales and Operating Income are so up and down. Could I put it down to the merging of business or the change in the economy not sure, but it sure looks scary?

Free Cash Flow

	2015	2016	2017	2018
Free Cash Flow		908,746	968,213	510,290

Free Cash Flow is the amount of cash available from operations after paying for planned investments in long-term assets and after paying cash dividends to shareholders. Cash Flow is vital to a company’s survival without it, it can cause problems. Having an abundant cash flow allows a company to expand, invest in research and development and hire the best employees. What can be seen in China Outfitters Holdings Ltd is that they have made good decisions in where they have used their cash flow to expand the business. Although it shows a cash down turn for 2018 the company is not in danger.

Implicit Interest after Tax

	2015	2016	2017	2018
Implicit Interest after Tax	12,797	8,718	9,178	10,463

What a sneaky little trick this one is. The definition of Implicit Interest after Tax is the normal interest rate implied by borrowing a fixed amount of moeny and returning a different amount of money in the future. So, if you borrow money from someone and agree to pay it back with an additional amount you are not specifying any interest or interest rat. What is implied with China Outfitters Holdings Ltd is that if you were to borrow money for a loan there will be an implied rate of tax set for when the agreement is to be paid back. In this case we are using 5% as our implicit rate. However, make note at present China Outfitters Holdings as no loans at this point of time.

Whilst we have been investigating the different ratios a few points that I have found by reading through the Annual reports that the key ratios that are used in the financial highlights section of the repots shows the following:

• Current ratio = Current Assets / Current Liabilities (This we have used in our own scenarios)
• Trade Receivable Turnovers ratio = Average of opening and closing balances on trade receivables/revenue for the period x 180 days
• Trade payables turnover days = Average of opening and closing balances on trade payables/revenue for the period x 180 days
• Inventory turnover days = Average opening and closing balances on inventory/cost of sales for the period x 180 days

The table below shows the figures that the reports can show about the ratios stated above.

	2015	2016	2017	2018
Current ratio (Times)	2.2	2.2	3.9	3.9
Trade receivable turnover days	42	44	44	47
Trade payable turnover days	52	45	36	49
Inventory turnover days	419	359	269	330

The turnover days of trade receivables and payables remained consistent for the four years.

In 2016 the inventory turnover decrease by 60 days was mainly due to 1) the decrease in procurement for products aged within one year and 2) the stock clearance strategy to sell past season products aged from one to three years leading to a decrease in inventory.

In 2018 the inventory turnover increased by 60 days due to the acquisition of MCS business which resulted in a full consolidation of MCS inventories kept by the then joint venture.

The one thing that has shown throughout from 2015 to 2018 is the there was no undrawn banking facility as at the end of each year.

Accounting Drivers – Commentary

Key Accounting Drivers of Firm’s Past Economic Profit (Abnormal Income)

China Outfitters Holdings like most companies in China are suffering from the continuous slowdown in growth of macro-economy and weak retail market sentiment, together with the impact of e-commerce on conventional retails, led to a decrease in number of retail points, revenue and gross profit of the group. There has also been a decrease in government subsidies and tax refund received for the relevant periods and the increase of amortisation of equity-settle options expense.

Since this course started and reviewing our different company’s Financial Statements, we have seen an economic downtown through out the world. While most of China’s large industrial firms recovered in July 2019 after posting a year-on-year growth of 2.6%. What can now be seen is that the overall picture is negative with total industrial profits down 1.7 per so far which was led by an 8.1 per cent slump by state sectors as seen by the source below. Tariffs were at a higher rate of 25% for exports to the United States and due to the trade war tariffs, it can be seen that producers and exporters have even tougher times ahead. Those companies like China Outfitters Holdings Limited remain downbeat about their prospects due to the pressure of the trade wars.

Accounting Drivers of RNOA

China Outfitters Holdings Ltd Annual Reports show that there is a fluctuation in the RNOA of the business and being one of the key drivers of the company. The Operational Activities have seen the company enter into several joint ventures of the past five years. Hence the net Operating Assets have decreased. We can see within the figures that over the past two years the company has properties that are under development. This would lead to the company not being able to use these businesses to produce the profit that is required.

Accounting Drivers of Firm’s Free Cashflow (OI-∆NOA)

The Drivers of Free Cash Flow for China Outfitters Holdings Limited that uses its cashflow to develop the company by using the cash to expand its company. Through investing in Joint Venture, the company is able to expand its operations.

Overall thoughts on Accounting Driver Analysis

China Outfitters Holdings Ltd has a challenging and changing market and their drivers will be investments in brand, business digitalisation and logistics warehousing as this will be used for the purpose of laying a foundation for future growth.
The government subsidies are used as a measure to attract investments in their local areas. These subsidies are determined by reference to value-added tax, corporate income tax, city maintenance and construction tax and any other taxes paid by the group’s operating entities and are subject to the further discretion from the government.

Interaction with other students

Should the enterprise value be the same for DCF and Economic Profit?

Hi Iris, on the Valuation tab, on Cell C34, you seem to have entered the NOA figure which overwrote the formula on the cell that copies it from the Key Value Drivers tab. To fix up the issue, change the 812486 value in Cell 34C to this formula: =+’Key Value Drivers’!G15 This should make both enterprise value figures match.

Let me know if it doesn’t work.

Billy V

Apologies, Iris! I gave you the wrong cell reference, it should be cell C30 not C34. If you change the value of C30 on the Valuation tab to the formula I mentioned, it will balance.

Billy V Thank you for your help. The formula worked.

Discussion – Sharon Field with Me

Sharon Field shared a link.

My ratio reflections draft is now available 🤔 https://sharonsaccountingdecision.blogspot.com/ I’m interested in comparing airline industries, so if you have an airline your opinions are most welcome🤗✨Thank you

Iris N Kees Onvlee Hi Sharon although I don’t have an airline I will have a look later today as well. However, considering it is a Chinese company will be interesting to compare the difference between manufacturing and transport industry.

Sharon Field Thanks for all the awesome comments, I think I’ve replied to everyone on my blog now. I will be reading everyones blog’s and leaving comments tomorrow and over the weekend. I’ve posed some questions and would love a response. There’s some really interesting developments that might assist other people too, not just airline companies…but you’ll have to read my blog to find out!!!😃

Iris N Kees Onvlee Hi Sharon you might be interested in this article https://tradingeconomics.com/china/gdp-growth-annual

Sharon Field Iris N Kees Onvlee thank you😀 I think most companies in China are directly influenced by the country as a whole. I’m not sure if that’s an advantage or not. On one hand, it provides incentive to achieve but maybe it stifles growth by restricted creativity.

Iris N Kees Onvlee It was interesting to note for my side of things that Retail sales rose 8.4 percent year-on-year in the first six months of the year in 2019. However if you look at the forecast graph the GDP Annual Growth is still decreasing.

Sharon Field Iris N Kees Onvlee hmm I wonder why?

Iris N Kees Onvlee Hi, Sharon, I was having trouble posting to your blog as it was leaving my old blog as person who was providing feedback. Please check your inbox. If you are able to respond to the message that would be greatly appreciated.

FEEDBACK TO SHARON FIELD ABOUT RATIOS

Iris – Interesting to see how your sales have been increasing and yet your net profit is decreasing. After further surfing the internet I found this article which may explain your net profit decrease. https://asia.nikkei.com/Business/Companies/China-airline-trio-suffers-first-profit-drop-in-5-years It shows that with the high fuel costs and also the decrease in the Yuan that profits were down. With the grounding of the Boeing 737 Max after recent crashes and authorities asking the domestic carriers to sop using the planes in 2019.
Profit Margin – if any indication of the company having to stop using the Boeing 737 Max and using older airplanes could cause the effect of loss of profit. With high fuel costs, fluctuating tariffs the potential for higher profits is somewhat sombre.
NOA and ATO – Looking at the efficiency ratio here if the company expenses are increasing where were these increases from? This would be where we would analyse how well the company is using its assets and liabilities. I can see that your asset turnover is high and that having a high asset turnover is using its assets effectively.
RNOA – looking at your response in this area and having a low Return on Net Operating Assets looking at why could help. I found that with China Outfitters Holdings Ltd it was due to the company classifying some of their trademark companies as intangible assets with indefinite lives.
You have put a lot of thought into what you have written. You have logically laid out the main point of your discussion. It will be great to see what you have written for Steps 4 & 5. I will finish my evaluation sheet once I have seen the rest of your steps.

Sharon – Thanks Iris, I really appreciate it

I knew about the grounding of the Boeing Max 8s til 2020 and that they cancelled the contract for 60 odd more to be built. I didn’t think to look at the strength of the yuan or tariff fluctuations. There are some minor connections in the financials indicating some changes in exchange rates, but not so significant. I’m feeling that it is difficult to assess the efficiency of the assets due to the nature of the industry. These are big ticket assets, millions of dollars up-front outlay and millions to maintain and operate, all before one cent of sales has been made. And it kind of has to be that way due to the precious cargo of human life. I’m still struggling to find adequate answers to why the economic profit is staggeringly negative and increasing and why anyone would want to invest – which doesn’t seem to deter CSA from issuing more shares each year. Still lots of questions yet.

Iris – Thinking about what you have just written once the airplanes are in the air we could think about the landing fees and operating costs of that affect the planes use.

Sharon Field – Yes! of course, taxi fees on runways, hanger fees, gee the airport hub itself! It’s stupendously expensive to run an airline. I totally forgot about the airport they’ve recently opened in Bejeing. I can’t imagine these kinds of assets being easliy liquated or resold or properly valued…I was thnking what do they do with obsolete airplanes too

Iris – Also what about your competition especially the new airline Scoot

Discussion – Evelyn

Evelyn Peltohaka – Key Value Drivers spreadsheet – Sales, OI, NOA, FCF, Econ Profit, RNOA – 2015 to 2018

Are the figures in the above Key Value Drivers table meant to match with the figures in restated statements and ratios spreadsheets?

Iris – Only the Sales as the OI, NOA, FCF, Economic Profit and RNOA self populate once you have added Sales. Hope this helps.

Discussion – Katrina Brown with me on Step 3 – Ratios

Iris Ratios Commentary to Katrina Brown

Your overall ratios look very similar to mine.

Profitability Ratio – Looking at your Net Profit and Return on Assets there is such a difference when compared to China Outfitters Holdings Ltd. Could your profitability be down due to the expansion of the company throughout China?

Efficiency Ratio – Similar again to China Outfitters Holdings. How well is your company using its assets and liabilities? Al the optimal efficiency Ratio is considered to be 50% or under we need to see why ours is above. Does your company have a high asset turnover?

Liquidity ratios – it was interesting to see that your quick ratios had such a difference hence the possible cashflow problem with assets. Both companies with the current ratio show that there has been an improvement in the company’s ability to pay its current debts. Higher the ratio, the better the company’s liquidity. There is no issue with your company paying its debts.

Financial Structure Ratios – Looking at this area I can see that your debt/equity ratio is also. What is your actual debt ratio (comparison of total debts to total liabilities) as this would show what proportion of your business assets have been financed with debt? It was interesting to note that your Equity to Assets ratio was much was similar to my company China Outfitters Holdings Limited. This shows me that with a high ratio how has your company leveraged its debt and is able to draw new investors who are willing to finance the investments. Your EBIT shows that our company has no trouble in repaying its debts.

Interesting to note that your market ratios could not tell you anything about the business. If I was to compare the two companies, we would come to the same conclusion on both. My issue is that my company paid no dividends to its shareholders since 2016 making it difficult to compare different years.

Dividend Payout Ratio – This was a frustrating area which I found was hard to determine the proper ratios.
Return on Equity – I would also ask what else may have been going on to have negative figures in the reports. I found that joint-ventures had an impact on my figures.

Return on Net Operating Assets – With this I would be looking at what has gone on within the company to see these types of figure. I found with China Outfitters Holdings Ltd that due to the company classifying some of their trademark companies as intangible assets with indefinite lives has affected my RNOA.

Net Borrowing Costs – In comparison to my company the figures changes and with mine the costs were attributed to a substantial period of time where it took the company to get ready for their intended use or sale.

Profit margin – were there any areas where you can see that the profit may have changed. What I found with China Outfitters Holdings Ltd was that the firm excluded inventory provisions which were mainly attributable to the increase in sales through outlet stores, bargain stores and online channels which have lower gross profit margins.

Asset Turnover – Why were your sales low in regard to this. I found with China Outfitter’s Holdings that the asset turnover was affected by the number of joint ventures that the company had over that past five years.

Free Cash Flow – although your company shows a negative cash flow what has been the factor behind this? Have they made wrong investment choices, management and staff related choices? Having cash flow is vital for the business and without it can cause problems.

Accounting Drivers – Commentary

Economic Profit – When looking at an economic profit I considered the downturn in the economy, Trade wars/Tariffs between China and the US. Government Subsidies and tax refunds may have decreased and an increase in amortisation of equity-settled options expense.

Katrina

Thank you so much for your interesting feedback and thought-provoking questions Iris! You have left me with some great stuff to think about. I have updated my ratio commentary below the China Ting Group’s ratio table, feel free to have a browse.

Our companies are similar in some areas and not in others. Very interesting. Your company seems a lot more positive than mine, so I wonder what yours is doing differently to appear more profitable? My company is making some interesting asset changes and has not experienced whether it is successful or not yet. I am not too convinced I would invest in China Ting Group, but am looking forward to working out some future predictions.

Many thanks, Katrina 🙂

Katrina – And…. Have you seen this website at all? I am not sure it is official, but it is interesting.
https://www.readyratios.com/sec/industry/23/

Iris – Thanks Katrina. I didn’t see this. I have been struggling with Step 5. I will have a look in the morning and see how the comparisons are.