A Share Cash Flow Improvement And Financial Cost Reduction

A shares eliminated the cash flow situation of the financial sector has improved significantly: A shares excluding financial 2015 cash flow accounted for 3.1% of the proportion of income, which is the highest level since 2010, and since 2010, the continuous decline in cash assets ratio has also bottomed out from last year.

From the point of view, the main reason for the improvement of the A share cash flow is that the proportion of raising cash flow to income has increased by nearly 6 percentage points. We infer that this may be the difficulty of raising funds under the loose monetary policy.

Also began to see the top down.

Generally speaking, the risk of enterprise capital chain breaking has dropped significantly, and those traditional enterprises that have died quickly are "alive".

The gross profit margin of A shares was raised from 18% in 2014 to 19% in 2015, and this year's quarterly gross profit margin has further increased to 19.9%, which has been at a very high level in history (more than the 2007 strong recovery cycle, see Figure 16). What needs to be emphasized is that last year's A gross margin improvement mainly depended on the decline of upstream resources industry prices and the cost of manufacturing in the middle reaches. In the first quarter of this year, the price of upstream resources generally increased, while the gross profit margin of the middle reaches of manufacturing industry did not decline as a result of this (or because many middle industry industries had followed the price increase), which made the gross profit margin of A shares improved further.

Although the gross profit margin of A shares has improved significantly, ROE has continued to fall, which has reached a record low. The total ROE of A shares (TTM) has dropped from 11.9% in 2014 to 10.1% in 2015, and this year's quarterly report has dropped further to 9.5%.

A shares eliminated ROE (TTM) from 8.6% in 2014 to 6.5% in 2015, and this year's quarterly decline further to 6.3%, a record low since 2003.

The main reason for the downlink of ROE in 2015 is that

Asset liability ratio and asset turnover rate also declined, and asset turnover rate deteriorated significantly.

Although the gross profit margin increased by 0.9% in 2015, the total rate of three increased by 1.1%, which resulted in a decline in the profit margin. In addition, the asset liability ratio in 2015 also showed a slight downward trend compared with that in 2013. However, the decline in the two assets and the rate of decline in the asset turnover ratio were "wizardry" - the asset turnover in 2015 dropped by nearly 11 percentage points, a record low.

In the first quarter of 2016, the convergence rate of ROE declined. The main reason was that sales profit margin and asset liability ratio began to improve, but it still could not offset the decline in asset turnover.

In 2016, the single quarter ROE of a quarterly report was 1.5%, only 0.1 percentage points lower than that of last year's quarterly report, and the downward trend was obviously convergent.

From DuPont's dismantling, we can see that this year's quarterly sales profit and asset liability ratio are all better than last year's, but asset turnover is still worse than the same period last year, thus offsetting the upward impact of sales profit margin and asset liability ratio.

The crux of the difficulty of raising asset turnover is the recovery of the economy, but the growth of assets also follows the upward trend.

Asset turnover is equal to income divided by assets. This year's economic recovery has brought about.

Excluding the growth of financial revenue from negative to positive (from -6% in 2015 to 0.6% in 2016), but at the same time, the growth of A shares excluding financial assets has increased from 10.2% to 16%, which results in the current A share excluding financial revenue growth, which is 15 percentage points lower than the growth rate of assets.

The only way to solve the fundamental problem is to promote the contraction of production capacity, but this is inconsistent with the policy requirement of "steady growth".

If enterprises maintain the current growth rate of 16% of assets, only when the income growth rate is higher than 16%, the asset turnover rate of A shares will be likely to rise, but this is difficult to achieve under the environment of "stock economy".

Therefore, the only feasible way is to slow down the growth of assets to a lower level than the growth rate of revenue, that is, to drive the contraction of production capacity with the courage of "breaking the wrist".

But this will inevitably lead to further downward and even negative growth in Chinese manufacturing investment.

As manufacturing investment occupies a pivotal position in China's national economy (half of China's GDP contribution is investment, and 1/3 of its investment is manufacturing industry), and since 2005, it has never experienced negative growth. Therefore, if the growth rate of manufacturing industry is changing from positive to negative, it will surely bring heavy downward pressure on economic growth, which is contradictory to the current "steady growth" policy orientation. Taking into account the "6.5% annual growth rate of GDP" has been written into the "13th Five-Year plan", we believe that in the medium term, it is impossible to see that policies can push forward the contraction of production capacity. In this environment, the traditional assets turnover and ROE of A shares are difficult to have obvious upward inflection point.