I. Background of HTC
Hongda Company is an electrical joint-stock enterprise established in 1988. 1In March, 1994, with the approval of China Securities Regulatory Commission, Hongda Company went public. The company's business scope is very wide, including TV products, air conditioning products, electronic medical products, power equipment, mechanical products, digital cameras, communication and computer products. However, color TV is HTC's fist product, which has long occupied a leading position in China.
Around 1997, HTC ensured its leading position in the domestic color TV market through the strategy of drastically reducing prices. In the next few years, as competitors compete to cut prices, the profit margin will become smaller and smaller. In order to get rid of this unfavorable situation, HTC is eager to explore the international market, especially the American market, and reduce its business risks through the development of domestic and international markets.
Second, the beginning and end of the accounts receivable crisis
The occurrence of accounts receivable crisis
Since 1996, HTC's accounts receivable have increased rapidly, from 1995 to19 million yuan to nearly 5 billion yuan in 2003, and the proportion of accounts receivable in total assets has increased from 0.3% in 1995 to 23.3% in 2003. In 2004, HTC made provision for bad debts of US$ 3,654,380,000. By the first quarter of 2005, HTC's accounts receivable amounted to 2.775 billion yuan, accounting for 65,438+08.6% of the total assets.
The accounts receivable of Hongda Company not only increased substantially, but also the turnover rate of accounts receivable decreased year by year, from 65,438+4.67% in 0999 to 65,438+0.09% in the first quarter of 2005, which was significantly lower than the other three listed companies in the color TV industry.
Huge accounts receivable greatly reduced the net cash flow from operating activities, from 3 billion yuan in 1999 to-3 billion yuan in 2002. By the end of 2004, the net cash flow generated by its operating activities was 760 million yuan.
65438+At the end of February, 2004, HTC announced that it would face heavy losses this year due to large bad debts, which shocked investors and China's household appliances industry. Affected by the patent fees and the anti-dumping factors of the United States against China color TV sets, the main customer of HTC, the American importer KR Company, suffered great losses, and it was difficult to pay it in full. KR is the largest debtor of HTC, with accounts receivable amounting to 3.838 billion yuan, accounting for 96.4% of the total accounts receivable. On this basis, the company decided to make provision for bad debts for this account receivable. At that time, it was estimated that the maximum provision for bad debts was about $3,654,380,000.
In addition, as of February 25, 2004, the balance of government bond investment entrusted by HTC to Southern Securities was 654.38+828 billion yuan. Due to the current insolvency of Southern Securities, according to the principle of prudence, it is planned to make full provision for impairment of the investment balance of entrusted treasury bonds. HTC's net profit in 2003 was 260 million yuan. According to this standard, HTC needs to bear this debt for at least 10 years. /kloc-lost money for the first time when it went public in 0/0, leaving a debt of 10. In just a few days, HTC's share price fell by nearly 30%, and the total market value loss exceeded 3 billion yuan. In the first half of 2004, HTC's net profit was only over 60 million yuan.
It can be seen that the chief culprit of HTC's huge losses is the American distributor-KR Company. American KR Company was established in 1997. It is a joint venture of American Sanlian Company, Hong Kong Ocean Company and former Zhenjiang Jiangkui Company, with JL as the chairman. Since July 20001year, HTC has continuously sent its color TV sets to KR company. However, the product went out, but the payment was not received. JL, the manager of KR Company, who was named as the most competitive entrepreneur in the world in 2002 by American Time magazine, always refused to pay or owe money to HTC on the pretext of quality problems or uncollected accounts.
HTC's annual reports in 2003 and 2004 showed that KR owed HTC nearly 4 billion yuan in accounts receivable. On March 23, 2004, the 2003 annual report released by HTC revealed that by the end of 2003, the company's accounts receivable were 4.985 billion yuan, of which KR accounts receivable were 4.446 billion yuan. On March 25th, 2003, the annual report for 2002 released by HTC Company showed that HTC Company realized revenue of 654.38+02.59 billion yuan and net profit of 654.38+07.5 billion yuan, but its operating cash flow was-2.97 billion yuan, which was the first time that HTC Company had been negative since it compiled its cash flow statement (654.38+0998). By the end of 2002, HTC's accounts receivable still reached 4.22 billion yuan, of which 3.83 billion (US$ 460 million) was unrecovered. In contrast, accounts receivable have risen instead of falling. At the same time, HTC's inventory exceeds 7 billion yuan, of which 310.2 billion yuan is inventory goods and 2.256 billion yuan is raw materials. It is puzzling that although KR owes such a huge sum of money, there is no special reminder in the annual report, neither the report of the board of supervisors nor the financial report of the accounting firm.
These data changed in HTC's quarterly report in the first quarter of this year. Among them, the company's accounts receivable decreased to 4.572 billion yuan, but the inventory increased from 7 billion yuan at the beginning of the year to 7.884 billion yuan, and there was no crisis.
In the transaction between KR and HTC, all credit sales have to go through factoring procedures. After KR, the factoring company and HTC sign the agreement, the factoring company will inform Wal-Mart and other retailers not to pay directly to KR, but to hand over the payment to the factoring company, which will divide the money between KR and HTC according to the ratio of 10% and 90%. KR said that for the goods that did not enter the supermarket chain, KR provided HTC with a check guarantee, and the number of these goods was very small. In other words, HTC has two ways to recover the payment: factoring procedure and KR check guarantee. In this respect, in international trade, the buyer's check guarantee protects the seller to a completely different degree from the commonly used letter of credit. The validity of check guarantee depends on the buyer's credit and capital account, and the bank is not responsible for payment.
In 2002, the total trade volume between HTC and KR was US$ 500 million, of which US$ 200 million was not recovered. According to the statement, the debt owed by KR increased from 40 million dollars at the beginning of the year to 460 million dollars at the end of the year. Judging from HTC's huge accounts receivable from KR, HTC's export income is basically realized through KR. HTC may be OEM for KR, or it may buy out HTC's color TV, which means whether HTC's payment can be recovered has nothing to do with retailers such as Wal-Mart. According to the export of 3976 1000 color TV sets and the export income of 5.54 billion yuan, the color TV sets exported by HTC should be low-end products (less than 1400 yuan on average). In order to prevent the risk brought by the possible bankruptcy of Wal-Mart, both HTC and KR have insured with insurance companies. If the factoring company fails to receive the payment within two months, the insurance company will pay. But in fact, the average payback period paid by KR must be more than two months. In 2002, HTC recovered the payment of 40 million US dollars. According to the notes to the statement, as of March, 2002, 10, KR payment of 89.06 million USD has been recovered, and another101990,000 USD bills are being collected. In the interim report of 2003, HTC explained: "According to the company's experience over the years, the accounts receivable with the age of 1 year can generally be recovered in the following year." However, in the 2003 annual report, HTC disclosed that the amount owed by KR Company was 35 1 20,000 yuan in1year and 933 million yuan in 1 ~ 2 years. This figure leads to a question, whether the payment of 933 million yuan belongs to the agreement signed by HTC, KR and the factoring company, and if so, why can't it be collected after 1 year? At the same time, due to problems with entrusted financial management, HTC's 200 million yuan fund was temporarily frozen.
In fact, HTC has made provision for bad debts of more than 90 million yuan for accounts receivable with KR exceeding 1 year. In 2003, the profit of HTC's main business was 302 million yuan, and the bad debt provision of 90 million yuan undoubtedly greatly eroded the company's profitability. The total amount of accounts receivable and inventory is 1 199 billion yuan, accounting for 56% of total assets and 9 1% of net assets, which will affect the company's asset quality. As the road to export to the United States is blocked, HTC's color TV set originally planned to export to the American market may depreciate sharply. In fact, the bad debt provision of June 5438+February 3, 20041reached 261155059 yuan. Obviously, according to HTC's profit level this year, it is unable to support this high cost.
Seek a solution to the crisis
Rome wasn't built in a day. HTC was dragged down by KR overnight. As early as March 5, 2003, there were media reports that the business relationship between KR and HTC might make HTC suffer losses. However, HTC did not have an emergency brake. After the KR accounts receivable incident, HTC's management has decided to reinvent HTC and let it go into battle lightly in 2005, so it will withdraw 2.6 billion yuan of bad debts from KR accounts receivable every year. The new management does not want this burden to have a more lasting impact on HTC. In the second half of 2004, HTC once planned to buy KR in a desperate attempt to restart its internationalization strategy. The price of receiving KR is KR's payment of 470 million dollars. For KR, $470 million is the first issue of solvency, and it is quite difficult for KR to take out so much cash at one time. Even if there is, KR will find a way to default. KR's repayment path has proved unworkable. Taking over KR to enter the North American market at the cost of 470 million US dollars may be a victory or a helpless move. Receiving KR has at least two advantages. First, with the acquisition of KR, HTC has made great progress in internationalization. The second is to solve the problem of KR's arrears and move forward lightly.
HTC has a similar experience in Indonesia. As early as 2000, HTC began to export to Indonesia through cooperation with local Indonesian manufacturers, who produced products and HTC did OEM work. At the same time, this manufacturer also sells its own brand products. After a period of cooperation, Indonesian partners owe HTC a lot of money. The end result is that HTC acquires Indonesian partners and owns the sales network of Indonesian partners in Southeast Asia. With the support of a strong sales network, HTC's products attacked Indonesia on a large scale, including color TVs and air conditioners. Up to now, HTC's air conditioners and color TVs have occupied most of Indonesia's market. Indonesia's market is the largest in Southeast Asia, occupying the Indonesian market and occupying the commanding heights of Southeast Asia.
Although the KR incident is not the same as the Indonesia incident, they are comparable. After HTC takes over KR, it will use KR's existing channels and industrial upstream and downstream resources to sell KR brand products in the United States. One background is that KR is the largest selling brand of household appliances in the low-end market in the United States, and it has considerable influence. After the acquisition is completed, there will be no problem with KR now, because HTC is facing retailers such as Wal-Mart, even if the payment is in arrears, it will not be as serious as it is now, just like the cooperation between HTC and Suning and Gome, which saves the intermediate link of KR's troubles.
But this is still an idea. For HTC, how to force KR to submit was the biggest test at that time. If successful, HTC will successfully tide over this difficulty. At that time, HTC did not file a lawsuit against KR in the United States, only considering that a long transnational lawsuit was more risky for HTC. Because according to the agreement signed between HTC and KR, according to the principle of territoriality, all lawsuits must be carried out in the United States, and the execution of judgments must also be carried out in the United States.
From June 5438 to October 2004 10, JL was criminally detained by Sichuan police on suspicion of bill fraud, which also meant that HTC was completely disappointed with KR. In order to recover the payment as much as possible and reduce the loss, HTC sued KR Company in the High Court of Los Angeles on June 5438+February 4, 2004, claiming that KR Company violated the debt repayment agreement and failed to fulfill the installment repayment obligation twice overdue. The defendant, KR Company of the United States, was required to repay the purchase price of US$ 472 million (about RMB 4 billion) (including interest and late fees totaling US$ 484.3 million), attorney fees and legal fees. And asked the court to issue an injunction prohibiting KR from transferring assets, deleting or destroying books, and allowing HTC to find out KR's financial situation. Verify KR's financial and operating conditions through judicial procedures, so as to further solve the problem of KR's arrears. The focus of both parties is whether the 37 cheques written by KR Company for HTC in 2003 are empty cheques, which will determine whether KR is suspected of bill fraud. However, in response to the company's lawsuit, KR filed a counterclaim against HTC in the Los Angeles High Court on June 65438+1October 65438+April 2005, claiming that HTC's pre-loss announcement and media reports damaged its business reputation before CES (Consumer Electronics Show) in the United States and demanded compensation. In response to this counterclaim, HTC believes that the pre-loss announcement was made by the company in accordance with the laws of China, and the company did not release any remarks to the news media that were detrimental to KR's commercial reputation.
Relevant personnel from HTC, lawyers, accounting and judicial departments entered KR and began to ask about the company's financial status and operating conditions. Through long-term investigation, HTC rejected the plan of "collecting debts by taking over KR assets and obtaining KR equity". During the investigation, HTC found that as a private enterprise, KR is not transparent in financial aspects, and it is difficult to judge how far the financial situation announced by KR is from the actual financial situation. The question now is not how much KR's assets are mortgaged, but how much solvency KR has besides these assets. According to the data of Deng Bai, an international credit investigation agency, KR's net assets are pitifully small compared with its sales. In addition, according to its historical records, KR is a troubled enterprise. Since 200 1, there have been many commercial disputes. Many counterparties, including banks, suppliers, transporters and factors, wrote to KR asking for mortgage loans. KR has mortgaged a lot of assets, and some assets have even been mortgaged repeatedly. In addition, during the investigation, it was found that most of KR and its partners had overdue debts. HTC is worried that after taking over the equity of KR in this way, while taking over the assets of KR, it will fall into another huge "contingent debt" trap of KR, and at the same time bear endless lawsuits for KR.
It is understood that KR has 65,438+000 employees, and its products cover more than 20,000 retail stores in North America, including BestBuy and CricuitCity. One sign of KR's foothold in the United States is the establishment of a solid sales channel. On the other hand, KR is already very famous in America. In recent years, KR Company has sprung up in the American market because it imported a large number of household appliances such as DVD and color TV from China, and then sold them to famous American supermarket chains at competitive prices. And these two parts are already the most valuable things of KR. In HTC's pre-loss announcement, it is estimated that the recoverable account is $6543.8+$500 million, which is most likely based on the overall estimate of KR's asset value including brand.
HTC said to the outside world that one of its main tasks at present is to recover the payment as much as possible. On March 27th, 2005, HTC disclosed that it had recovered nearly $654.38 billion from KR.
On July 18, 2005, ZH Company, a Hong Kong-listed company under KR, announced that KR and its controlling shareholder JL had mortgaged all the shares of ZH Company to HTC as a guarantee for the receivables from KR. HTC, dragged down by KR's accounts receivable of nearly 4 billion yuan, seems to have got a good news.
On July 18, 2005, ZH Company, which has been listed in Hong Kong for many days, announced that KR and JL, the controlling shareholders, made the latest declaration of interest according to the Securities and Futures Ordinance: they would hold 654.38+65 million shares (5 1.94%) and 57.7 million shares (/Kloc-) of ZH Company respectively. KR's main business scope is in the United States, and JL is its founder, holding 52% shares of KR; ZH Company is a Hong Kong-listed company of JL, and Hongda Company is a supplier of ZH Company. At present, both parties have no receivables or payables. ZH Company continued to suspend trading. According to the data of Hong Kong Stock Exchange, ZH Company has 654.38+0.2 billion legal person shares and 365.438+0.8 billion issued shares. The face value is HK$ 0.025 and the market value is HK$ 457.92 million. The net asset value of ZH Company is only HK$ 6.5438+0.7882 million, the profit is only HK$ 6.5438+0.3 million and the earnings per share is 0.04 1. Based on this calculation, the market value of KR and JL in ZH Company is about HK$ 238 million and HK$ 83 million respectively, and the total of the two items is only HK$ 3.2110,000. However, from the perspective of net asset value, the mortgage of these two items is only worth HK$ 654.38+02.6 million. It is far from HTC's accounts receivable of nearly 4 billion yuan.
In July, 2005, the two parties reached an agreement, and KR provided HTC with three-part assets mortgage as a guarantee for part of its arrears of US$ 654.38+RMB 50 million. Three parts of assets mortgaged by KR, one is the real estate mortgage guarantee of KR company; Second, the equity guarantee of ZH Company, a Hong Kong GEM listed company, held by KR and its president JL; The third is the KR trademark guarantee, and the three-part asset mortgage registration procedures were completed that month.
In September 2005, the announcement of HTC's board of directors showed that of the $467.5 million owed to KR, only $65.438+0.5 billion can be recovered from KR, which means that there are still $36.5438+0.75 billion (2.6 billion RMB) that cannot be recovered. This figure is higher than the total profit of HTC from 1999 to 2004. Due to the large amount of HTC accounts receivable, it is difficult to recover. Before HTC, the inventory with net assets of 654.38+0.4 billion yuan was nearly 9 billion yuan, which is such a financial situation. The follow-up development of HTC is worrying. At the beginning of 2005, HTC obtained a comprehensive credit line of 3 billion yuan through bank financing, but for several years, HTC was still troubled by the failure of accounts receivable management.
Thirdly, the analysis of accounts receivable management of Hongda Company.
(A) the thinking of financial personnel: the handling strategy of accounts receivable
Accounts receivable is one of the important indicators reflecting the operating ability and real profitability of listed companies. Investors pay more attention to the increase or decrease of the book profits of listed companies, and less attention to the authenticity and reliability of the book profits. At present, China's listing governance is still relatively weak, and the book profits of many listed companies often differ greatly from the profits actually included in the bag, especially in the event of bad debts of accounts receivable and insufficient provision in advance, the actual profits of the year often fluctuate greatly.
The proportion of bad debt provision for accounts receivable usually increases with the increase of years. Foreign countries generally set aside 100% provision for bad debts for accounts receivable with a maturity of more than three years, but at present, the average provision ratio of listed companies in China is 68.35%, and there is no mandatory provision ratio. This has caused some listed companies to adjust their profits with the increase or decrease of accounts receivable through uncertain accrual ratio, and most of them show inflated profits. Once the accrual ratio is increased or fully accrued, or bad debts actually occur, it will often lead to a sudden loss or a sharp decline in profits of listed companies. There are three kinds of listed companies with hidden concerns in accounts receivable management: first, listed companies with large accounts receivable and failing to make full provision for bad debts in advance; Second, listed companies with a large amount of other receivables and insufficient provision for bad debts within three years; Third, accounts receivable account for a high proportion of the main business income of listed companies. The investment risks brought by accounts receivable of listed companies often make investors unprepared.
Htc underestimated the possible risks of KR accounts receivable. Accordingly, the board of directors of the company decided to make provision for bad debts for this account receivable according to a more cautious specific identification method, and make corresponding accounting treatment according to changes in accounting estimates. In the announcement of June 5438+February, 2004, HTC indicated that it was prepared to make provision for bad debts for KR receivables at the rate of 365,438+0,000,000. However, nearly half of HTC accounts receivable are still at risk. Financial personnel should analyze the risk level of accounts receivable when exposing risks and predict the default probability of this part of accounts receivable.
According to the default probability prediction of accounts receivable, the financial staff made a treatment plan for accounts receivable. In addition to actively collecting accounts receivable, financial personnel can consider whether to factor accounts receivable, that is, enterprises sell accounts receivable to banks at a certain discount to obtain corresponding financing funds.
According to the default probability forecast of accounts receivable, the bank set the discount rate of accounts receivable factoring business. The greater the default probability of accounts receivable, the higher the factoring discount probability of accounts receivable, and the less HTC accounts receivable withdraw cash, the more losses.
Financial personnel must clearly predict the default probability of accounts receivable in order to decide whether to classify accounts receivable as accounts receivable and the most appropriate discount rate for the company to recover cash from accounts receivable.
Huge accounts receivable have seriously affected HTC's cash flow. When analyzing the most suitable discount rate of accounts receivable, financial personnel must also consider recovering the cash amount according to the established discount rate of accounts receivable. In order to make up for the company's working capital gap and financing cost, financial personnel need to weigh the discount rate of accounts receivable and financing cost.