Financial Evaluation Framework Of Real Estate Enterprises

As a boss or investor, what is most concerned about is how much money is invested in a certain amount of money.

ROE and ROIC are the two core indicators reflecting the income level of real estate enterprises.

ROE= net profit / shareholders' equity, which reflects the income level of shareholders' equity, and the higher the index value, the higher the investment income.

The ROIC=EBIT (1- tax rate) / (interest bearing liabilities + equity) reflects the income level of the invested capital of enterprises, and the input capital includes the shareholders' equity and the interest bearing liabilities of the enterprises. Similarly, the higher the index value, the higher the income it brings.

In the actual application process, most people are accustomed to using ROE index to analyze the income level of enterprises.

But we know that ROE= assets turnover rate * net profit rate * interest multiplier, in other words, in addition to the enterprise's turnover rate and net profit, this index is also proportional to the leverage of corporate finance, the higher the financial leverage, the higher the ROE.

Therefore, when the network is benchmarked, the index can not objectively reflect the return of investment capital of the enterprise as a whole.

The ROIC index puts liabilities and interests in a position of equal position, which can more accurately reflect the relationship between enterprise performance and occupation of resources.

And benchmarking enterprises in 2010 ROIC is probably between 9-14%.

Scale / growth indicators: in real estate enterprises, several core indicators of scale evaluation include sales volume, total asset size and total land reserve area.

In the past ten years' development of the "scale theory" in the real estate market, the sales scale of an enterprise represents the position of the enterprise in the industry.

Larger sales scale and more land reserve have become the basic requirements of listing.

With the series of amazing numbers created by Vanke and Hengda high turnover enterprises, more and more small and medium-sized developers are unable to sit down.

They began to reflect, two or three years ago, the enterprises of their own size are now far behind themselves. Why? So the author thinks that the scale comparison is more like a reflection on the positioning and speed of development of enterprises, including the average growth rate of sales, the ratio of land to land (indicators reflecting sustainable development of land reserves), and the growth rate of total assets, and whether it keeps pace with the average growth rate of the industry.

Profitability index: there is no doubt that every real estate enterprise pays attention to profit index, but the path of profit realization for each enterprise will be different.

The factors that affect the net profit rate of enterprises include the following four aspects: 1, the nature of the project itself is mainly evaluated by the gross gross profit margin of the enterprise.

The gross profit margin of A enterprises in recent years is as high as 50% or even more than 60%.

The reason is: the project concentrates on the high-end projects in the first tier cities, the price is high, the land cost is low, and the Jianan cost is not much different from the benchmarking enterprise.

And Longhu, Vanke and other famous enterprises in recent years, the gross margin is concentrated between 30%-40%.

2 the cost control ability is mainly evaluated by the proportion of three expenses / operating income, which mainly reflects the control ability of enterprise cost. Although A enterprises have high project premium, but the cost control ability is general, and the number of projects is limited, it can not effectively reduce the cost.

3 the tax planning ability is mainly evaluated by the tax burden coefficient (net profit / pre tax profit). The real estate industry has made great changes in the profit pattern due to the addition of the land value-added tax. That is why.

The core reason that can not be converted to high net interest rate.

The A enterprise tax burden coefficient is 0.36, while the benchmark enterprise's tax burden coefficient is between 0.6-0.7, so the gross margin advantage of the enterprise has not been turned into the net interest rate advantage.

But for real estate enterprises, there is a certain space for tax planning, which is one of the abilities that need to be cultivated for a long time.

4 investment property scale and overall operation level, in Hong Kong share listed companies, because the investment property valuation profits can be included in the net assets, the impact on the net profit rate is very great. We are familiar with Sun Hung Kai's net profit margin of more than 100% is caused by its huge property appraisal increment.

Although we generally talk about the net profit rate of real estate enterprises, it is more about the net profit rate of real estate sales, but as more enterprises pform into commercial real estate.

The profit margin of investment property evaluation will become an important evaluation index.

Conservatism index: the core concerns two indicators - the ratio of assets and liabilities that affect solvency and the cash flow of enterprises.

The overall assets and liabilities ratio of A enterprises is higher (more than 80%, the overall level of the industry is 75%). The analysis of the overall debt structure, excluding the assets and liabilities ratio of the accounts receivable (or the use of interest bearing debt to equity ratio) is still higher (more than 60%, the industry benchmark is 40%), indicating that the level of interest bearing liabilities of enterprises is relatively high.

Cash flow is analyzed and contrasted by operating cash flow, investment cash flow and financing cash flow.

For example, Sun Hung Kai has always been prudent in its financial strategy. Its cash flow is basically maintained and has a certain scale. At the same time, it strictly controls the financing of cash flow and basically does not rely on bond financing.

Vanke also pays attention to fund security. In recent two years, cash flow has been maintained at a scale of more than 2 billion. Even in the weak market situation in 2008, operating cash flow has basically been balanced.

However, in recent years, most of the real estate developers in China rely on the high scale financial leverage (the cash flow of operating cash is basically negative, and the cash flow of financing activities continues to rise), and the scale of the expansion of the cash flow is particularly prominent in the light market situation in 2011.

Operational efficiency index: 1 reflects the overall resource utilization efficiency of enterprises: total asset turnover or inventory turnover.

The higher the index value, the higher the efficiency of asset utilization.

The index value is influenced by product type, development and operation cycle and other factors.

2 per capita efficiency, including per capita sales, per capita net profit, and per capita sales area, and the starting area.

According to the selection of appropriate indicators in the management mode of enterprises, the A enterprise projects are concentrated in the first tier cities, and the price is higher, so the per capita net profit is higher.

However, the per capita development area is at a relatively low level in the industry, so the real situation of per capita efficiency can be reflected through comprehensive comparison.

(three) project level: IRR (project internal rate of return)

Project IRR is related to two indicators, project profitability and project development and operation cycle.

The former is basically determined by the nature of the project itself, and the development and operation cycle of the project is determined by the level of development and operation of each company.

The core of the development and operation cycle is the cycle from cash to cash, which can be divided into the cycle of land acquisition, start-up, pre-sale, pre-sale and completion.

To raise the level of project IRR, it is necessary to shorten the cycle time. For a certain scale of real estate companies, the gap between start and completion will not be too large. The core gap is mainly reflected in the front end strategy and design cycle, as well as the sales cycle of the back end sales.

These indicators are closely related to the standardization of enterprise products, the precondition of core work and the management level of various business links.

Project IRR is the basis for determining the overall performance of a company, but too much attention to the IRR level of a single project often fails to maximize the overall value of the company.

This requires decision makers from the company's overall financial perspective, in the actual operation process, clear guidance, gains and losses, and ultimately achieve the maximum value of the enterprise as a whole.

The establishment of the framework of financial evaluation provides a good entry point for understanding enterprises, and has a comprehensive and in-depth analysis of enterprises' performance from performance to resources.

But financial analysis, after all, reflects only the results, and the internal driving forces that affect the performance of enterprises, such as strategic direction, human resources, execution and corporate culture, are the issues that need attention outside the framework of financial analysis.