Profitability Diagnosis On YE Company

Facing the frequent changing national policies, the rising land costs and housingprices, the increasingly diversified customer demands, the increasingly intenseindustry competition, the real estate enterprises still maintained a stable profitability.YE company’s main business is real estate development. And its return of net assetwhich was9.9%,7.4%and5.7%since2010to2012respectively showed a great gapwith Fuli, one excellent real estate company and a continued downward trend as well.It can help to improve YE company’s profitability through the diagnosis on it.The following reasons can be found through using several financial diagnosismethods such as Du Pont financial analysis. First, the company’s pre construction andfacilities costs are too high, the indirect development costs are not well controlled,especially Lanzhou, Xi’an project. Second, the selling expenses such as commission,advertising and promotion expenses, and administrative expenses are too high. Third,inventory and accounts receivable turnover rate are too low, especially Xi’an, Lanzhouprojects’ overstock and the recoverability of Guangzhou c project.Below measures can be taken to improve YE company’s profitability and enhanceits competitiveness.1. Reduce redesign cost, strengthen the pre construction and facilities’ costcontrol, especially for key projects such as Xi’an.2. Condense the sales department, Cut the sales commission and promotionexpenses, Add advertising activities’ analysis, Improve administrative expenses’saving.3. Reinforce the coordination of marketing and engineering to reduce stock,Accelerate the progress of property ownership certificate to recover the receivablesand to enhance the return on assets.