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The last time I talked about interest capitalization, I talked about the interest expenses in some projects under construction, and when they were finally recorded, they became fixed assets, and they did not have to be reflected in the financial expenses of the income statement - interest expenses.
In fact, this is just an appetizer, if you dig deep into the construction of listed companies, you will find that this is a huge pit.
Investors pay little attention to the construction in progress, and this neglected project is often a source of dirt. In layman's terms, a project under construction is a basket that can be loaded with anything.
According to accounting standards, construction in progress is mainly used to account for unfinished construction expenditures. For example, the plant under construction, the equipment during the installation and commissioning period, etc.
There are two characteristics of construction in progress, one is that the accounting standards allow some expense items to be capitalized through construction in progress, and some sporadic expenses incurred in the construction process can be included in the construction in progress if they meet the conditions; Second, compared with fixed assets, the biggest feature of construction in progress is that it has not reached the state of use, so there is no need to provide depreciation.
It is precisely because of these two characteristics of the project under construction that it has become a tool for many companies to whitewash the report.
The first is to include daily official expenses and other management expenses in the construction in progress. For example, the travel expenses, entertainment expenses, and even gift expenses incurred in the construction stage have been cleverly set up to achieve the construction in progress, and will be converted into fixed assets, which should have been deducted from profits in the current period, and have entered a long depreciation period with the buildings, equipment and equipment.
The second is to postpone the transfer of fixed assets, so as to delay depreciation. The construction in progress that has reached the completed state and is actually used is not accepted and transferred to fixed assets, resulting in the depreciation of this part of the construction in progress.
Third, the interest expense that should have been included in the financial expenses has been capitalized. Although the standard allows the capitalization of interest on borrowings during the construction in progress period, many companies will include interest expenses in the construction in progress as much as possible in order to improve profits.
Of course, there are also some listed companies that use these items to manage earnings and whitewash their financial statements to maintain their ideal stock prices.
Today, our focus is on postponing the transfer of capital.
Most investors do not have the opportunity to go to the construction site of the listed company to see the progress, how to identify the construction of the project under construction?
In annual and semi-annual reports, the CSRC mandates the disclosure of the completion progress of major projects under construction, and finds the same project to compare with previous years, although this method is not 100% accurate and can often find clues.
1. What is **Chain?
Eternal Asia is a first-class chain enterprise, and the company's core business is a comprehensive business service platform with a wide range of comprehensive business services and a 380 new circulation service platform as the core.
To be specific? Build a full-process first-class chain service serving various industries and industries, help raw material suppliers, brand owners, manufacturers, downstream channel providers, sales terminals, key customers, value-added service providers, etc. in the industrial chain to achieve resource integration, information connection, platform sharing, and promote the development of enterprises to integrated enterprises.
The slogan seems to be broad and empty, but a careful reading of the company's list of subsidiaries suddenly becomes clear. According to the semi-annual report, the company has a total of 545 subsidiaries, in addition to the first chain company, there are also a large number of small loans, factoring and other financial companies.
The company's business model is relatively clear: docking with the customer's non-core business, providing them with first-class chain services from raw material procurement to production and processing, inventory management, logistics and transportation, channel distribution and so on. More importantly, it is necessary to provide financial services to these customers.
So, where does the company's money come from?
The balance sheet shows that it is mainly a variety of loans, short-term borrowings of 20.5 billion, long-term borrowings of 1.4 billion due within one year, long-term borrowings of 600 million, and bonds of 1.1 billion …
After dismantling the company's core business, the company's profit logic is very clear, as long as the actual interest rate of the funds advanced to customers (small loans) exceeds the company's loan interest rate, then it is profitable.
However, what you covet is other people's interest, but what others covet is your principal.
The customers served by the company are mainly small and medium-sized customers, and their reputation is not very good, and the risk of bad debts is high. The 2022 annual report shows that the company's bad debts are as high as 1500 million, even more than the benefits brought by financial services.
If companies fail to manage the risks, financial services will be costly.
Second, Eternal Asia has skyrocketed in the number of projects under construction.
In addition, the company will start construction in 2022.
The construction in progress on the books has grown explosively.
Data**: Straight Flush ifind, Cartography: Poetry and the Stars.
As of the third quarter report of 2023, the company's balance of projects under construction is as high as 2.4 billion, what is this?
According to the company's 2022 annual report and 2023 semi-annual report, it can be found that the largest project is the "Qianhai ABP", with a budget of 1.5 billion yuan, and 1.1 billion yuan has been invested.
In addition, there is a Shanghai project planning of 500 million yuan, and a Yibin project planning of 58.9 billion, Jinan Industrial Park plans 1.1 billion, and Datang Quyao Workshop plans 400 million.
Considering that these projects require a large amount of capital, the return on investment is still unknown for a company with a highly strained capital chain and an annual interest expense of about 1.5 billion.
3. The mysterious "progress of the project".
Careful friends should find that in the list of projects under construction in the annual report and semi-annual report, there is a column called "project progress".
In general, the progress of the project is related to the progress of the transfer. In other words, what percent of the construction in progress is completed, and it is transferred to fixed assets according to this ratio.
The biggest difference between construction in progress and fixed assets is that fixed assets are subject to depreciation.
At present, 1.1 billion yuan has been invested in the Qianhai headquarters project, and if it is transferred to fixed assets, the annual depreciation will be tens of millions.
Speaking of which, in order to confirm the approximate depreciation amount, Xingkong Jun deliberately checked the company's depreciation life, and found a new continent: the company's depreciation life is outrageously long.
The longest of the buildings was 46 years.
This may be one of the listed companies with the longest depreciation period for A-shares.
Back to the progress of the project, the New World is really not ordinary.
The completion rate of the project in the 2022 semi-annual report is 4107%, but in the annual report it became 3637%。The reason for this is that the budget has been increased from 1.2 billion to 15900 million.
Is the pace reasonable?
According to the progress of more than 100 million yuan of investment per year, this ABP will need to be repaired for at least 10 years, and if the budget is increased, it may be far away.
What's even more outrageous is that the company's official claim that the Qianhai headquarters building held a topping out ceremony as early as December 22, 2021.
In the blink of an eye, two years have passed.
Do you have any misconceptions about infrastructure maniacs?