Profitability Diagnosis On CH Company

CH is a company which manufactures PCB(Printed Circuit Boards)and copper clad laminates.It is one of the few manufacturing enterprises which have vertical integration industry chain in the industry of PCB.Since listed in 2009,CH has been in a profitable position until 2016,its net profit was always more than 10 million yuan before 2016.In 2016,when other companies in the same industry were making profit,according to the annual report of CH,CH got a negative profit for the first time since being listed for nearly 10 years.The loss was about 61.93 million yuan,the return on equity was-3.63%.However,CH made a profit of 31.2 million yuan in the first half year of 2017,which is more than that of year 2014 and 2015.Therefore,what causes CH's huge losses in 2016? What causes the big profit in the first half year of 2017? How is CH company's profitability? If its profitability is strong,can it be continued in the future? If its profitability is weak,what causes the problem? For the managers of CH,what measures should they take to improve the profitability of the company while maintaining profitability? Answering these questions will be the focus of this paper.Firstly,based on the operating characteristics of CH,the data scope and analysis index of CH are determined.Secondly,the level and quality of profitability is analyzed by using the method of index and improved du pont analysis.It is found that the company's main problems include high operating cost rate,high asset impairment loss rate,high financial asset ratio and the company relied too much on non-operating income.Finally,the causes of these problems were found one by one.The main reason includes: CH has a big consumption of raw materials of PCB,the accounts receivable is under inadequate control and provision for bad debt is rather strict,the financing strategy is radical,borrowing rate is high,and the company's non-operating income is not sustainable.After finding out the causes of the problem,this paper provides suggestions for CH.In terms of product structure,CH can adjust the product structure and appropriately increase the production and sales of copper foil.In terms of cost of products,firstly,improve the producing process of printed circuit boards in order to save dosage,secondly,improve the production process management to reduce the incomplete,thirdly,staff can be trained and thecorresponding incentive policy can be made to improve the production efficiency of the staff.In terms of accounts receivable management,firstly,improve the credit sale strategy before the sales of products,secondly,improve the control and management of accounts receivable after the sales,thirdly,improve the provision policy for bad debts.In the terms of financing and investing policies,firstly,reduce idle fixed assets,secondly,improve the efficiency of the use of raw materials to improve the efficiency of production process,thirdly,diversify borrowing methods.This paper can provide reference for CH's management on making decisions,help the company to improve its profitability and develop healthily.