房地产企业财务风险分析及控制研究—以龙湖地产为例

　　During the development of China's national economy，the real estate industry is seen as the pillar industry among all industries.Furthermore,the healthy economic development of the real estate industry may help national economic growth and improve people’s lives.As China has a large population base and continuous development of society has promoted the real estate industry development.Since the reform and opening up,the amount of real estate investment in China has been greatly increased,and give rise to the development of social companies in China,and real estate investment has also been greatly improved,which can ensure the stability of China's national economic development.Nevertheless,the real estate industry is the part of the industry group and can cause a certain extent in industries such as the construction,metallurgy,and manufacturing which are all real estate-related industries.The expanding of the real estate industry will inevitably lead the improvement in real estate-related industries.[1]Moreover,the real estate industry has the features of huge capital demand,long capital recovery period and large financing requirement.From this point,researches on financial risk analysis become more and more vital.

　　The real estate industry has been seen as main target for national regulation in those years.Meanwhile,Chinese government has announced austerity package for control the overheated development in real estate industry in recent years.In 2010,the policy of restricting house purchases has been published,and the government adjusted the real estate industry from the perspective of finance,taxation and credit in 2016.If real estate enterprises want to survive in industries,the company’s financial risk control becomes particularly important.

　　Corporate financial risk management refers to the identification,measurement,analysis and evaluation of various risks in the process of financial management by business entities.Therefore,enterprises need timely and effective methods for prevent and control risks,and they may have to come up ideas with economically reasonable and feasible methods to ensure financial management.

　　The risks of the real estate industry can be divided into uncontrollable risks and controllable risks.The risks of national policies and the risks of market changes are beyond the control of real estate companies.However,the financing risks and project implementation risks are controllable risks and arise from the project's profit margin and the project's cash flow.Moreover,the real estate companies also have project closure rates,project construction quality,sales contract performance risks and safety risks.Among all those risks,the financial risk is the easiest risk to identify,and it is represented in enterprise financial statement.Overall,enterprises should pay more attention in financial risk management.

　　Risk always existed.The ancient nautical industry,medieval European casinos,ancient Chinese money houses and modern Chinese darts all show the existence of risks.The understanding and format of modern people's understanding of risk is much greater than in traditional risk categories.[2]As a core component of risk,financial risk is increasingly being evaluated by the theoretical and physical communities of countries around the world.Chinese market economy started late and business managers'perceptions of risk are weak,so financial risk theory need to further discuss.

　　In international literature review,western scholars started earlier in the study of financial risk-related theories.In 1920s,Henri Fayol has introduced the idea of risk management to enterprise in his book Industrial Management and General Management.[3]In 1950s,the issue of risk management has attracted attention in American enterprises.Besides,Mowbray first proposed and used“risk management”in his book Insurance,and company started analysis enterprises’risk management.Then,enterprise risk management has gradually become an independent discipline.In 1966,American financial analysis expert William Beaver proposed the univariate judgment model in"Accounting Review",which uses a single financial ratio to predict the financial risk of an enterprise,and found that the best judgment ratio that can effectively predict financial failure is debt protection ratio.[4]In 1968,Edward Altman observed the insolvent and non-bankrupt manufacturing companies in the America,and used the data of 22 financial ratios to mathematically screen and establish the famous 5-variable Z-score model.Moreover,the Z-Score model comprehensively reflects the financial status of the company from the aspects of the company's realizing ability,asset scale,financial structure,profitability,asset utilization efficiency and debt paying ability,which further promotes the development of the financial early warning system.[5]

　　In domestic literature review,Enlu Liu and Guliang Tang published the article Financial Risk Management,which explained the definition of financial risk and its objective reasons systematically,introduced the characteristics of financial risk,and the methods of financial risk management in 1989.[6]In 1994,Dewei Xiang published an article Financial Risk.According to the basic content of financial activities,financial risk was divided into financing,investment,fund recovery and income distribution risk,and analysis of the causes and control methods of the four types of financial risks in-depth.[7]In 1996,Zhou Shouhua,Yang Jihua,and Wang Ping continued to improve on the basis of the Z-score model,and established a prediction model—the F-score model.[8]In 2105,Xiaodong Ren has analysis real estate company’s internal and external financial risks,and he believes the reason of financial risk in real estate industry is from macro-economic,market,resource and policy environment.[9]

　　1.3.1 Research ideas

　　The research mainly divided into four parts.First of all,part one shows the research background and significance,domestic and international literature reviews about financial risk management,research ideas and methods are also mentioned.The second part is a theoretical overview of this article,introducing the relevant theories of financial risk and financial risk control,and explaining the connotation,characteristics and analysis methods of financial risk,as well as the types and strategies of financial risk control.Then,the article describes the characteristics and causes of financial risks of real estate companies.Thirdly,an analysis of Longfor Real Estate Company will be given,including financial situation of Longfor Real Estate Company,the factor identification of financial risk of Longfor Real Estate Company,evaluation of company’s financial risk and problems in financial risk control of Longfor Real Estate Company.Finally,the report will do research on the countermeasures of financial risk control of Longfor Real Estate will be given.

　　1.3.2 Research methods

　　(1)Literature research method

　　The literature research method refers to summarizing the existing literature in order to obtain the information.The advantage of this research method is that it can learn from previous thoughts,and has achieved the purpose of innovation.At the same time,this method has extensive knowledge coverage which provides obstacles to the comprehensiveness of research results.

　　(2)Analysis method

　　The analysis method refers to a comprehensive analysis of the project based on the different levels of the research object and the actual situation through deep exploration of the research object.Besides,the research method has the advantages of clear priority and better grasp of the main contradictions.Generally,there are analysis dimensions including qualitative and quantitative,comparative and inductive,dynamic and static.

　　2.1.1 Financial Risk Content

　　Financial risk refers due to uncontrollable and uncertainty factors in enterprise’s various activities make the final financial outcomes obtained by an enterprise within a certain period and range are deviated from the expected business goals.Therefore,the company has possibility to suffer losses or obtain revenue.In the definition of narrow financial risk means risks arises from a company's ability to repay debt,and financial risk have the characteristic of unpredictable.Enterprise must repay capital and interest when borrowing from banks.However,unpredictable factors may appear,and those factors may increase company’s burden and pressure.Enterprises will face insolvency situation.

　　On the other hand,in the definition of generalized financial risk also include fund recovery risk,income distribution risk which should consider enterprise’s internal and external environment.Therefore,generalized financial risks take all aspects of business activities into account,and it has the ability to make thorough analysis about company’s activities.Based on the characteristics of the real estate industry,financial risk is separated into five subjects,including funding risk,investment risk,operational risk,inventory management risk and liquidity risk.

　　2.1.2 Financial Risk Characteristics

　　First of all,financing risks are originated from two aspects.Initially is the debt repayment risk.When an enterprise makes a loan from bank,the loan contract will clearly specify the requirements and repayment period on loans.If the company has a lot of loan funds,and the company is facing poor management and improper use of funds,it may cause the enterprise fail to repay the capital and interest on time,which will cause debt risk.Secondly,another financing risk is the risk of change in returns.This risk is caused by the uncertainty of the income generated by the capital and property.The change in profit before interest and tax in financial leverage is the main reason for this uncertainty.When the capital structure of the enterprise is stable,and the interest generated by the loan is paid from the profit before interest and tax,the company will be safer.

　　Investment risk refers to the risks that an enterprise has incurred in carrying out project investment activities.After determination in investment project,a certain percentage of capital is invested,but in the end,there may be risks due to changes in market demand which will cause the original income to be different from the actual income.Securities investment is mainly divided into stock investment and bond investment.Stock investment is an investment method in which risks and returns are shared,and bond investment is investments in which bonds that generate regular returns to obtain revenues.

　　Operational risk is one of the company's main financial risks,which refers to the various stages of the company's production,operation,procurement,construction,production and sales,and company’s capital movement are also effected by internal and external factors.As a result,the revenue of the business has changed.Operational risks run through the entire operation of the enterprise,from purchasing raw materials,to producing and constructing real estate,selling the house,and collecting receivable fund.

　　Thirdly,inventory management risk is also a vital financial risk.It is important for companies to maintain a reasonable inventory for their production and operation.Most real estate enterprises have a high proportion of inventory in their current assets,which accounts for a large amount of inventory.This represent that the company’s funds are heavily occupied and the company is facing high financial risks.If the company’s inventory is too small,the supply of raw materials may not be available during the construction process,which may cause the project to stop production and affect the company’s schedule.How to determine the best inventory is very important for real estate companies.

　　Lastly,liquidity risk refers to the possibility that a company's assets cannot transfer to cash or that its corporate debt and payment obligations cannot be performed normally.Besides,the liquidity risk of an enterprise can be analyzed and evaluated by the two aspects which are company's liquidity and solvency.[10]

　　Financial risk exists in production and operation activities of an enterprise.Correct identification of financial risk is of vital importance to the management of an enterprise.Identifying financial risk timely is vital，company should take effective measure before the risks appeared.Company can reduce losses by accurately identifying the financial risks and take measures to reduce loss caused by financial risk.Although there are many reasons for the formation of financial risks,quantitative and qualitative analysis methods are major ways to identify financial risk.

　　The quantitative analysis is one of the majority ways to recognize financial risk,and it concludes several methods such as univariate decision model analysis,financial statement analysis and Z-score model.First of all,univariate decision model analysis means use single financial indicator value to forecast and analyze the possibility of corporate financial risks.Secondly,the financial statement analysis method refers to starting from the financial statements of the enterprise,analyzing the financial indicators based on the data in the statements,and then determining the financial risks based on the changes in the financial indicators.Thirdly,Z-score model is proposed by Altman in 1968.Through analysis of bankrupt company,Altman conclude a formula Z=0.012X1+0.014X2+0.033X3+0.006X4+0.999X5.Based on the study of the Z value,when Z is greater than 2.675,it indicates that the financial situation of the enterprise is within a safe range;When Z is less than 1.81,the company has a financial crisis and is more likely to go bankrupt.Moreover,the Z value is between 1.81 and 2.675,the value is called the"gray zone".The financial status of enterprises in this range is extremely unstable,and there is a high probability of bankruptcy.[11]

　　The qualitative analysis’s representative method is expert meeting method.In expert meeting method,it mainly rely on experts use their professional knowledge to estimate whether the company has financial risk.Furthermore,branstorming is used when experts are discussing the issue.Through mutual discussions,exchanges,and debates,a judgment is made on the possibility of the future development of the research object,and a comprehensive conclusion is finally reached.

　　In the daily production and operation process of raising and using funds,risks may lead the outflow of economic benefits rising by financial risks.In the process of capital operation,corporate financial risks are everywhere.If company do not pay attention to financial risks,t companies likely suffer pressure of reducing profits and capital.Nevertheless,financial risks can be identified,controlled,and prevented through a number of methods to help companies effectively avoid the negative effects of risks.

　　The identification method of financial risk is a continuous and systematic prediction;the risk is discovered by the judgment and induction of some potential,undiscovered but actually existing financial risks through a certain period.Before the financial risk occurs,people can use some method to analyze and summarize the corresponding financial indicators,they can find the problems and make a preliminary judgment on the enterprise risk,and avoid financial risk.In the process of risk identification,subjective and objective coexist,and the two are used in combination.On one hand subjectively rely on the knowledge and experience of managers to make a pre-judgment.On the other hand,objectively depends on collect useful information from inside and outside the enterprise to analysis and summarize.Enterprise uses the above methods to identify potential risks and predict risk trends.Moreover,the process of risk identification is also the process of screening,monitoring and diagnosis.Screening means filtering external information such as interest rates,policies,and also filtering internal information such as corporate financial data,land reserves,and other factors that will affect corporate financial risk.Furthermore,monitoring stands for continuous observation and monitoring of some risks that have not yet occurred or already exist.Lastly,diagnosis means finding out the causes of financial risks and inferring risk damage.Overall,the above three points can complete the effective identification of risks.

　　2.4.1 The Characteristics of Financial Risk of Real Estate Enterprises

　　The real estate industry is faced with greater financial risks because of its high investment,correlation,high benefits and capital-intensive characteristics.The development cycle of Chinese real estate industry is the same as the cycle of the national economy.As a result,it can be divided into four stages:the budding period,the prosperous period,the recession period and the depression period.When the real estate industry entered a recession period,the transaction volume of commercial housing decreased significantly.At the beginning of the recession,the price of commercial housing was still rising however the increase was not large.If the country's macro policy was suddenly adjusted,the transaction number of real estate would reduce greatly.Besides,Chinese real estate market rose dramatically in 2007,and fell in 2008.From 2009 to 2016,the national real estate market entered a period of adjustment in the regulation of Chinese national policies.Some characteristic of financial risk of real estate industry will listed below.

　　The first characteristic of financial risk of real estate industry is the cash inflow term is uneven.Continuous cash flow is the guarantee for the normal operation of real estate companies.However,the cash flow of most real estate companies fluctuates in the real estate industry.On one hand,during the period when the cash flow of the real estate enterprise is not stable enough,when the capital inflow is less than a year,the enterprise faces the risk of lack of funds.On the other hand,if investment income from real estate companies leads to excessive cash inflows in that year,it will cause excess cash,and the year when the cash inflows are small will face the risk of debt repayment.

　　The second characteristic is the turnover rate of funds is low.The construction of houses has to go through a long development process.From the selection of land,development,construction and completion of houses,and sales house,each stage requires a large amount of capital investment.However,only the properties that meet the sales conditions that company can pre-sell them and recover part of the funds.As a result,the only thing that can recover the funds is in the sales stage.The houses are generally purchased in installments or by bank loans which also make the funds impossible to realize in the short term and requires a longer period of time,which increases the financing risk of real estate companies.

　　The third characteristic of real estate industry is there are few opportunities for project adjustment.For real estate project has a period of more than a few years from development to completion.The huge investment and long-term management make the real estate project need once implemented and have the characteristic of the project cannot be easily changed,so it is more difficult to adjust or transfer.Therefore,each project requires a huge amount of cash.In this long-term development project,there are many unpredictable risks.For example,the adjustment of national policies and the disconnection of funds may cause the stagnation of the entire project,and the funds invested in the early process cannot be recovered.Overall,Enterprises are facing a situation where they cannot survive or recover debts.

　　2.4.2 The Causes of Financial Risk of Real Estate Enterprises

　　The first reason is that the financial risks caused by the real estate project development cycle.As real estate projects take a long time to complete from preparation,planning,purchase land,construction,installation,supporting properties,environmental greening,and product sales.The longer the cycle,the more unpredictable factors and cause the greater the risk.Moreover,the real estate project has a long construction period,socio-economic conditions.When policies are constantly changing,the more uncertainties will occur in product costs and sales.For example,the government’s regulation of real estate policy changes,land price will fluctuations,the price of raw material and interest rate will changes.These factors will lead to fluctuation in the cost of real estate companies and house prices.

　　Meanwhile,the second reason is financial risks caused by product characteristics of real estate.The immovability of real estate means that once it has its own position it fixed and it cannot be changed.If the position of a real estate project is different,its value is very different.The immovability of the product has caused the individuality and rationality of the product itself.The level of real estate prices differ from the geographical location.As superior geographical location indicates the superior level and improve its consumption capacity of the city and also shows the future development trend.Besides,uncertainty of the future development of the city is one of the risks facing by real estate investment.In addition,the price and location of real estate is closely related to the advantages and disadvantages of the social economy and geographical environment.

　　Lastly,financial risks can be caused by the supply and demand of real estate companies'funds.In fact,real estate is a capital-intensive industry.The production cycle of real estate industry takes long times,and the industry is also need huge number of of capital investment when develop period.The cost of real estate commodities is very high,and a lot of capital needs to be invested in the later stage according to the changes of the project.For real estate companies,an important ways for raising funds are bank loans and advance receipts for real estate projects.With the continuous improvement of the real estate enterprise's ability to operate capital,a series of new financing methods such as real estate equity investment,bond investment,and trust fund projects have been widely adopted.In nutshell,the real estate enterprise's funding sources is diversified.The larger scale of real estate projects,the more investment of funds to be raised,and they are operating in diversified financing methods.Overall,different financing methods are very complicated so the cost of capital is difficult to control,and the risks borne by real estate companies will be great.

　　Longfor real estate company is founded in 1994,grew up in Chongqing,the development of the country is a pursuit of excellence,attention to quality and details of professional real estate company.Headquartered in Beijing,the existing staff of more than 7,300 people with interests in real estate development,business operations and property services the three major sections.In 2009,the company listed on the main Board of the stock exchange of Hong Kong.

　　After a dozen years of concentrated development,Longfor formed has set investment planning,and development construction,and commercial management and property service for one of full process operation capacity and system,and efficient of more industry State development capacity,products cover has general residential,and office,and senior apartments,and Garden House,and Villa,and integrated commercial and the large city integrated body.Besides,the company has covered multiple industries,and each species industry has its own city benchmark of representative works.From 2004,through the implementation of“regional focus,multiple ideas”strategy,Longfor entered the stage of development of the national expansion of from north to south,from the coastal economic zone,radiate to the surrounding cities of the central city,and use format and dual balance to achieve the sustainable development in specific regions.In each city,the company has insisted on a number of projects,the development of multi-ideas,every aim is to enter the city and become the industry's leading companies.

　　Longfor real estate company’s organizational structure is clearly format into lines,forming a"one room,four departments and seventeen centers"functional organization system.All departments have clear responsibilities.First is General Manager’s office focus on strategic review.Besides,another apartment is investment and operation development department which responsible for all work before project marketing.Among them,the strategy and operation center mainly formulates 3-5 years of long-term strategy and annual strategy,and the monitoring of environmental and market changes is the highest decision-making level of the group's cost control.Moreover,the customer and company brand department that responsible for all work of company brand and project marketing stage.Furthermore,the finance department is mainly on business and capital structure adjustment.Finally,Human resources department is for the organization performance goal setting and organization structure adjustment[12].

　　

　　Moreover,the group is centralizes and controls all regional companies.The regional companies set up complete procurement,research and development,engineering,marketing and other departments;however the important departments are controlled by the group headquarters through the PMO system.At the same time,the PMO meeting chaired by the head of the regional company reports the key nodes of the project to the headquarters Approval.In addition,PMO is the Project Management Office(Project Management Office),which is to convene the relevant functional departments of the project to meet together to coordinate the various processes of the project,reduce the friction of project operations,and improve the efficiency of project development.From the management level,the PMO system enables the Group to effectively monitor the projects in various regions;from the operation level,the PMO system greatly improves the efficiency of project operations and coordination among all parties.The management structure of Longfor Real Estate has the following advantages.First of all,the headquarters organization is simplified and the efficiency of investment operations is improved.Secondly,the project manager is responsible for increasing the project authority and improving the project operation efficiency.Last but not least,the PMO system forms the headquarters'control of the project and strengthens centralization.

　　

　　Enterprise financial status analysis is based on the analysis of financial ratios,and evaluates and explains the company's financial statements.It is an important content of enterprise financial management,which analyzes the financial status of enterprise managers and provides a scientific basis for decision makers.The Corporate Finance General Regulations of China stipulates the following three financial indicators for enterprises.On one hand is the debt solvency index,including asset-liability ratio,current ratio,and quick ratio.On the other hand is the operational capability index,including accounts receivable,turnover rate,and inventory turnover rate.Besides,there are three indicators of profitability,including capital profit rate,net profit rate of sales,cost expense profit rate.In addition,these three indicators reflect the company's financial status,and they have checked the relationship with each other.Furthermore,the solvency will affect the operating capacity of the enterprise.Whether the capital is sufficient is affected by the size of the solvency.Therefore,the solvency has a direct impact on the operating level of the enterprise.Overall,the analysis of financial risks should use financial indicators to make judgments.

　　The following is the main financial data of Longfor real estate companies from 2017 to 2019:

　　

　　The overall financial situation of Longfor Real Estate Company is as follows.First of all,compared with 2017,the sales revenue of longfor real estate in 2019 is nearly two times of 2017,and the net profit is also double of 2017,and the income level has increased significantly.Besides,the scale of assets has gradually increased in three years.The figure of asset has risen from 362,763,854.000.00 Yuan to 652,244,848,000.00 Yuan which is a huge increase.Moreover,the number of total liabilities has increased doubled that indicating the company's debt continues to increase.Meanwhile,the increase in the size of accounts receivable has showed that there is still a great risk in the recovery of the company's sales.Furthermore,operating income has increased year by year,but the growth rate has decreased,and the company's sales rate has decreased.The asset-liability ratio is relative high,indicating that the company has borrowed a lot in recent years,and both long-term and short-term solvency risks are large.Besides,the inventory turnover rate and the size of the inventory indicate that the inventory turnover rate of Longfor Real Estate Company is slow,the company's overall operation is poor,and there is a greater risk.The financial report shows that in 2019,Longfor Group's operating income was 151.03 billion Yuan,an increase of 30.4%year-on-year.Although the profit growth in the vertical direction,compared with the profitability of Longfor Group in the horizontal direction,it shows downward trend also reflected in the annual report figures.In 2019,when the real estate industry is generally sluggish,the average annual sales growth rate of the two echelons of 100 billion to 300 billion and 50 billion to 100 billion will reach 27.5%and 30.8%,respectively.Longfor Group just falls into the above range,which means that its sales growth rate is slower than its peers in the same camp.Reflected in the rankings,Longfor Group has been squeezed out of TOP10 by China Resources Land in 2019,ranking 11th with a weak disadvantage.[13].Longfor's financial leverage has always been at a low level in the industry.In 2019,Longfor’s net debt ratio(net debt divided by total equity)was 51.0%,a decrease of 1.9 percentage points from 2018;the cash in hand at the end of the period was 60.95 billion Yuan,which was as high as the 13.39 billion Yuan debt due within one year 4.38 times.

　　From the previous figures,it shows that the financial situation of Longfor Company tends to be abnormal,and there are certain financial risks.If it is not paid attention to,the company's uncertainties in financing,investment,operation and management will increase.

　　The evaluation of financial risk is the process of combining the financial indicators of Longfor real estate companies to build a model and evaluate and judge financial risks.

　　3.3.1 Construction of Univariate Model

　　The univariate model refers to a method of analyzing and judging the financial risks of an enterprise by using the changes of individual financial indicators.American scholar Fitzpatrick first came to the conclusion of a univariate model.There is a clear difference between the financial ratio of a normal company and the financial ratio of a company in financial distress.It is further believed that the company’s financial index ratio can reflect the company’s current financial situation and pointed out that the financial ratio the indicators can predict the future of the company.On this basis,the method of data was applied for further establish a univariate financial early warning model,and it was found that the debt-guarantee ratio had a good forecasting effect,then the forecasting effect of asset return and asset-liability ratio,and the univariate discrimination of interest rate and bill discount cost Analytical method.The financial indicators of the univariate model are:debt protection coefficient,asset return rate,asset-liability rate and asset security rate.Through the report data of Longfor Real Estate Company in 2017-2019,three data can be obtained:debt guarantee ratio,asset return ratio,and asset-liability ratio.The particularity of the real estate industry,the market value of its corporate assets cannot be estimated,and the security of assets cannot be determined.The formula for selecting the financial ratio indicator is as follows:

　　Debt coverage ratio=net cash flow from the company’s annual operating activities/total debt of the company

　　Return on assets=Net profit generated by the company/average total assets

　　Asset-liability ratio=total liabilities/total assets

　　

　　From the tavle3-2,the debt ratio has decreased from 74.45%to 70.73%,which is falling every year.However,the high asset-liability ratio is higher than the real estate industry's standard ratio of 65%,indicating that enterprises have faced high debts situation.Moreover,the debt coverage ratio is gradually decrease from 0.2781 to 0.0706 which means the company’s ability to cover debt is weak.As the increase of company’s liability,the coverage situation became worse,and enterprise’s long-term solvency is turn into frail.However,there is a good sign,and the figure of return on assets has increased from 3.1%to 4.4%.

　　3.3.2 Construction of Multivariate Model

　　Multi-variable model is to select multiple financial indicator variables to establish an early warning model analysis in order to evaluate the financial status of the enterprise.Many scientists in China and abroad have conducted studies on whether listed companies have financial risks and how to predict them,and have established a lot of models.Through empirical research,they have obtained prediction results.Among them,the famous Z-score multivariate discriminant model proposed by Professor Altman,and the formula is Z=1.2X1+1.4X2+3.3X3+0.6X4+0.999X5.

　　The Z-value model theory is a conclusion published by Altman from 1945 to 1965 through research on 33 bankrupt companies and 33 formal companies in the United States.In this model,company can understand the seriousness of corporate financial crisis.The Z-score model is measured from the indicators of corporate debt service,operation and profitability.This model is easy to operate and has high accuracy.As a result,it has been widely used in enterprises,firms,banks and other financial institutions.Later,Altman proposed a non-manufacturing listed company financial early warning model(Z3 model),which adjusted the weight of the original model.Moreover,listed companies in China's real estate industry made application research based on this model.The results show that the effectiveness of the Z3 value model can analyze the financial situtaion of listed companies in the real estate industry.Enterprise managers can use the Z3 value model to make financial judgments,which can help enterprise managers,external investors and creditors evaluate the company's current financial Happening.The Z3 model is mainly an empirical study on the financial failure warning model of listed companies in the real estate industry in China.Overall,the listed companies in the real estate industry generally support the validity of the Z3 value model.

　　The discriminant function of Altman's Z3 model is as follows:

　　Z3=6.65X1+3.26X2+6.72X3+1.05X4

　　X1=working capital/total assets

　　X2=retained earnings/total assets

　　X3=Earnings before interest and tax/total assets

　　X4=total shareholders'equity/total liabilities

　　The model combines the three indicators of corporate debt service,profitability and operation to analyze the probability of corporate bankruptcy.When Z3 value<1.23,it means that the probability of bankruptcy of the enterprise is quite high;when Z3 value>2.9,it means that the enterprise is relatively safe and the probability of bankruptcy is small;when 1.23≤Z3≤2.9,it means that the enterprise is within the predicted gray range.There is a certain crisis in the financial situation,which requires further analysis.At the same time,it must be paid attention to by the management,and the company may go bankrupt.When the judgment result falls into this range,if the enterprise can analyze the problem in time,find the cause of financial risk,and improve the production and operation conditions,the risk can be controlled.

　　

　　Based on the analysis of Z3 model,the result of Longfor Real Estate Company is in the predicted gray range as the score is in the range between 1.23 and 2.9.First of all,the result is in the range which indicates that the company has financial risk in 2017.Moreover,the result in 2018 has increased compare with the figure in 2017.However,the number is still in the gray range means Longfor Company still has financial risk and the financial situation is not healthy.Furthermore,the figure is 2.5213 which also not fulfill the requirement of safe range.

　　From the previous study,there is a trend that Longfor Company’s Z3 score is fluctuated from 2017 to 2019.During the period of 2017 to 2018,the figure has increased slowly which is a good sign,and there is a peak in 2018(2.5327).However,the number has decline in 2019,which means there are some risks in Longfor Real Estate Company.

　　Through the analysis of Longfor real estate company’s financial ratio and the analysis of univariate and multivariable models,it is concluded that Longfor real estate company currently has financial risks that become worse in 2019.In general,the analysis of corporate financial risk will be analysis into four parts,including financing activities,investment activities and operation activities.

　　3.4.1 Risk of Financing Activities

　　Enterprises need sufficient funds as support to carry out production and operation activities.As a result,financing is an important financial management activity of enterprises.Moreover,it refers to the company through a certain financing method and capital market using a variety of financing channels to carry out an effective financing process according to their own business needs.From the perspective of funding sources,the way companies raise funds can be divided into equity financing and debt financing.Among them,debt financing includes a variety of methods,such as bank borrowing and bond financing.Equity financing is mainly equity financing.Since the listing of Longfor real estate companies in Hong Kong in 2009,there has been no problem of dilution of equity,and equity financing equity capital does not need to be repaid during the company’s normal operating period,so there is no financial risk of debt service.Therefore,the article mainly analysis the financing activities risks for Longfor real estate company as debt repayment.Moreover,traditional financial theory believes that the risk of corporate financing is due to the uncertainty caused by the financial results of the enterprise,and the financing risk is the debt risk.[14]Specifically,the risk of financing activities in this article refers to the risk of loss of solvency due to insufficient liquidity from debt raising operation in the enterprise,or the possibility that the enterprise will suffer losses due to improper use of funds when the enterprise borrow.

　　(1)Longfor Real Estate short-term solvency

　　The current ratio is used to weigh the short-term solvency of the enterprise.The current ratio 2 is generally considered to be the best.The higher the index value,the more sufficient the assets available will be to repay the company's debt.Therefore,the company's repayment ability is considered to be strong.On the other hand,if the current assets are too high,it indicating that its share of total assets is greater which will affect the company's operation and profit ability.According to the characteristics of the real estate industry,the best indicator of the current ratio is 2:1.The formula is:

　　Current ratio=current assets/current liabilities

　　The quick ratio is the ability to remove the inventory assets that are slow to realize liquidity and those assets that cannot be realized immediately,and remain assets with fast realization rate to repay the debt.Moreover,the quick ratio can make up for the insufficiency of the current ratio,and the quick assets can more intuitively reflect the strength of the short-term solvency of the company than the current assets.It is generally considered that the quick ratio is 1,which is a normal quick ratio.The formula is:Quick ratio=quick assets/current liabilities

　　

　　Based on the table 3-5,it indicated that the short-term solvency of Longfor is insufficient.The current ratio of real estate companies is very unstable from 2017 to 2019,and the current ratio is always lower than the Henderson’s.Besides,the gap compared with the industry in current ratio become wider.Longfor Real Estate intends to increase its leasing business,and inventory holdings are expected to continue to decline.Therefore,the amount of the company’s current assets may not be sufficient to repay short-term liabilities in the future,and there is a short-term debt repayment risk.

　　(2)Longfor Real Estate long-term solvency

　　The indicators reflecting the company's long-term solvency are the asset-liability ratio and interest coverage ratio.The lower the asset-liability ratio,the stronger the company's long-term debt capability and the lower the financing risk.Furthermore,the interest coverage ratio can reflect the risk of creditors investing funds,or the risk that the debtor cannot pay the interest due.In addition,the figures indicated that the greater the ratio,the more sufficient of the interest-bearing capacity which also reflect the lower the risk of creditors investing funds.The formulas are:

　　Asset-liability ratio=total liabilities/total assets

　　Interest coverage ratio=EBIT/interest expense

　　

　　Based on the figure of table3-7 and 3-8,it represented that both figures of Longfor real estate is lower than the figure of Henderson.Moreover,as the company changes its business model,reduces sales and increases rental housing.The profit of the company may continue to decline in the future,and the interest protection multiple may also continue to decline,and the company may not be able to pay interest.

　　3.4.2 Risk of Investment Activities

　　Profitability refers to the company's ability to make profits within a certain period of time.According to the research,the higher the profit rate,the stronger of the profitability.Through the analysis of profitability,company can find problems in the operation and management.This article mainly uses the indicators such as net profit ratio,gross profit rate,operating profit ratio and return on equity to evaluate the profitability of Longfor real estate companies.

　　

　　Compared with two tables,the figures indicated that Longfor real estate net profit ratio is significantly lower than Henderson Company.Besides,Longfor real estate’s net profit ratio is decreasing in recent years.The net profit percentage is the ratio of after-tax profits to net sales.As such,it is one of the best measures of the overall results of a firm,especially when combined with an evaluation of how well it is using its working capital.[15]In addition,the net profit ratio of Longfor is low which stands for the profitability situation is not well.Moreover,gross profit ratio for Longfor is fluctuated.In 2018,there is a peak on gross profit ratio.Furthermore,both operation profit ratio and return on equity is decreasing in recent years,and Longfor’s operating profit ratio is lower than Henderson Company’s data.Those figures indicate that the company’s investment situation is bad.However,there is a positive figure on Longfor real estate as return on equity is higher than Henderson’s.In conclusion,the Longfor real estate company profitability figure is unsatisfactory.

　　3.4.3 Risk of Operational Activities

　　Real estate enterprises are characterized by high investment risks,high costs and long payback periods.In all industries,real estate inventories occupy a large amount of capital and have long inventory turnover periods.Besides,the inventory turnover rate directly affects many aspects of the real estate company's working capital,current assets which affects the company's operating capacity.In order to maintain normal operation,an enterprise must have an appropriate amount of working capital.Moreover,working capital is the basis of the company's overall capital operation and carries the mission of enterprise value compensation and enterprise value appreciation.In addition,the operating capacity of an enterprise is the main figures of the working capital risk,and it also can reflect the capital turnover of the enterprise.[16]This article uses Longfor real estate companies'working capital turnover rate,inventory turnover rate and cash turnover rate to evaluate the operating capabilities and analysis the operating risks of Longfor real estate.

　　

　　Both Longfor Real Estate Company and Country garden Holdings Company’s operating capacity figures in 2017-2019 are shown in the previous table.First of all,the inventory turnover rate of Longfor real estate companies in 2017 is lower than the Country garden holdings Company.From 2018 to 2019,the inventory turnover rate has declined,slightly lower than the industry average.In terms of Inventory turnover in days,the figure of Longfor is higher than Country Garden in 2017,2018 and 2019.In addition,Longfor Real Estate's fixed assets turnover and receivables turnover ratio are higher than the Country garden’s figure which is a positive figure.Furthermore,the Longfor real estate’s total assets turnover is far lower than Country Garden’s index.The higher the asset turnover ratio,the more efficient a company is at generating revenue from its assets.Meanwhile,the Longfor’s total assets turnover ratio is lower than other company.The higher the asset turnover ratio,the more efficient a company is at generating revenue from its assets.From this perspective,people can know that the efficiency of company to generate revenue from assets is low.

　　In summary,in 2017-2019,some financial indicators of turnover rate showed a downward curve,and turnover rates in 2017 were at a relatively low level.Besides,the income level in 2018 rose sharply,the following three years turnover rate has improved.Besides,inventory has been slow-moving and shows a downward trend which is not a good sign.In addition,it is expected that with the progress of several projects under construction,the demand of funds will increase and the expected future revenue will decline.Overall，Longfor real estate companies should strengthen the management of working capital and make preparations for the shortage of working capital in order to prevent the potential risk.

　　(1)Unreasonable long-term and short-term debt structure

　　From the perspective of the risk identification of fund raising activities,Longfor Real Estate Company has great debt repayment pressure and low asset utilization efficiency.Both short-term solvency and long-term solvency are facing greater financial crisis.Moreover,the surge in short-term debt shows that companies have not rationally divided financing from the perspective of capital structure.In addition,the change in asset size has increased from 2017 to 2019,but the scale of liabilities in the same period has increased even more.As a result,the unreasonable debt structure has increased the risk of financing activities.Since 2019,the financing environment for real estate has continued to tighten,and it is difficult to make a turnaround in the short term.In conclusion,Longfor real estate may face both long-term and short-term solvency problems which may lead financial risk in the future.

　　(2)The financing method mainly relies on bank loans,which is relatively simple

　　It can be seen from the cash flow statement of Longfor real estate company's financing activities that the enterprise’s financing method is bank borrowing,and the share of the stock is small.As a result,the company's financing did not follow a reasonable capital structure.However,the financial market is rich in products,and there are many ways of debt financing,such as bank loans,issue bond,operating leases,financing leases,direct investment and commercial credit.[17]As the financing methods are different,the costs is also different,and the impact on revenue various.Besides,the real estate industry is a capital-intensive industry which requires a large amount of capital.It mainly relies on bank loans to raise funds.The proportion of its own funds is small,and there is a lack of long-term and stable capital supply.Once the country’s policy is adjusted,banks will increase loan interest rates.The company's fundraising costs and interest expenses are also relatively high,because the company did not carry out investigation and analysis when raising funds,and raised funds according to the risk level that it can accept.

　　(3)Insufficient cash reserves

　　The business activity cycle of JKC Real Estate Company is for obtain land use,develop and construct real estate,and sell real estate in three stages.Each cycle has a cash reserve requirement.However,the return of funds for selling real estate is the main source of cash reserve.Longfor real estate Company’s cash reserve is low,and subsequent projects need more funds.Moreover,the company should find a cash reserve suitable for itself.The real estate industry standard is more than 10%.Nevertheless,the sales of Longfor’s operating activities are not satisfactory,and the cash backflow is poor.Therefore,the cash reserve is insufficient.The enterprise must not only maintain normal production and operation,but also further expand its scale,the increasing demand for funds and the decline in revenue.Overall,those figures indicate that the enterprise is facing the risk of operating activities.

　　In conclusion,from the analysis of the causes of financing activities,investment activities,and operating activities,and through the determination of univariate models and multivariate models,it is concluded that Longfor Real Estate's 2017-2019 Z3 value is in the middle of the gray area,and the uncertainty of financial risk is relatively high and should attract the attention of management.Besides,the real estate industry is operated through a large amount of borrowings.Almost every listed company in real estate bears a high amount of debt.If no profit is generated,the company may not be able to operate normally,and may even face bankruptcy.Longfor Real Estate Company should have early warning of financial crisis and face greater financial risks.Moreover,the company's managers should pay more attention to further improve on financial situation,and the company should take actions to strengthen the management and prevention of financial risks.

　　Since the real estate industry faces high risks and runs through the entire production and operation activities,how to control and avoid the occurrence of financial risks is a problem that real estate should focus on.Therefore,it is very important to construct a financial control plan for Longfor Real Estate Company.

　　At present situation,financial risks exist in the production and operation activities of company,which are objective and inevitable.There are many uncertain factors in the control of financial risks.Therefore,the goal of corporate financial risk control is to reduce or eliminate uncertain factors.In the process of enterprise management,improve the operating mechanism of the enterprise risk prevention and control system,strengthen risk response measures,and improve the level of risk control is important.Moreover,company should take scientific and effective methods to control risks within the acceptable range,or transfer financial risks.Last but not least,it is vital to enhance the efficiency and continuity of enterprise capital flow and ensure the sustainable development of enterprises.[18]

　　In the process of enterprise financial risk control,according to the enterprise's financial management activities,the following basic principles should be followed:

　　(1)The principle of combining risk control and risk treatment

　　The principle of combining risk control and risk handling is required by the enterprise's financial risk control system.Some financial risks can be controlled by defensive measures based on past judgments before they occur.Some financial risks occur in management activities,and enterprises can take effective measures according to their own capabilities to avoid the losses caused by these risks.However,there are also types of risk formation factors that are more complex and companies cannot avoid losses caused by such risks it requires companies to take measures against risks.In order to deal with the losses caused,the best effect of risk control can be achieved only by combining risk control and risk treatment strategies.

　　(2)The principle of cost-effective matching

　　The most proper way to match the cost and benefit principle is to obtain the maximum economic benefit with the least cost.If the benefits of controlling risk are less than the cost of controlling risk,then the effect of the enterprise's risk control will fail.In addition,in the process of enterprise risk control,the cost expenditure is relatively clear,such as the consumption of risk transfer,install on company’s own risk,and the capital investment to control losses.However,the effect of risk control cannot be clearly determined,and it cannot be reflected in the short term.

　　(3)The principle of combining long-term and short-term benefits

　　According to the characteristics of financial risk,if there is a financial risk in the early stage,it may be possible to control the financial risk with only a small part of the expenses.In addition,recovering the large economic losses that may occur can provide a guarantee for the safe development of enterprises.[19]On the contrary,when a relatively large economic loss occurs,it is most likely that the decision-maker does not take risk control measures in order to obtain a small economic benefit.

　　Financial risk always exists in financial activities.Risks are almost inevitable,so establishing a complete analysis and control system is essential to prevent risks.According to the current situation of Longfor Real Estate's financial risk control,the following measures are proposed from the company's internal risk control.

　　(1)Establish Longfor’s financial risk management system

　　First of all,Longfor Real Estate Company need to set up positions,clarify job responsibilities and work processes.Secondly,the company's management and financial personnel are required to supervise each other.The company has set up an internal audit organization,financial control and internal audit are mutually restricted,and they supervise each other.In order to improve the internal control supervision system,Longfor Real Estate Company can further expand the audit committee.In addition,the company's internal audit department is directly responsible to the audit committee,and other functions remain unchanged.Such a two-way accountability system with relatively high independence can better strengthen the purpose of internal supervision of enterprises and discover risks.

　　(2)Improvement of internal control environment

　　The further improvement of the internal environment of real estate enterprise risk control can upgrading the enterprise is to strengthen the internal control in company and enhancing the risk awareness of the Longfor real estate.The awareness of risk prevention need company to have the thought in risk sensitivity.Moreover,the management of Longfor Real Estate Company must establish a high-quality management concept,which not only needs to be suitable for the company's own situation,but also conforms to the concept of social development,relying on an efficient information system to establish the company's employees'sense of responsibility for their internal control.For example,formulate financial risk control and management systems,strengthen management's risk awareness,improve the professionalism of employees,enhance the independence of decision-making of the board of directors,and strengthen the supervisory function of the board of supervisors.In the organizational structure of Longfor Real Estate Company,an audit committee can be set up under the board of directors,and an internal control function department can be added on this basis to strengthen the rights of the supervisory board in the enterprise.Furthermore,the improvement of the internal environment of the enterprise can strengthen the management of human resources,and the human resources center improves the system policies of human resources.

　　(1)Optimize corporate capital structure and strengthen the rationality of the structure

　　Due to the relatively large investment in the real estate industry,most companies choose debt to operate the real estate business.However,blindly through debt operations will cause the burden of debt increase,and leads to continuous expansion of financial risks finally.If the cash flow is disconnected,the debt cannot be repaid which will lead to bankruptcy.[20]Longfor Real Estate Company should determine the proportion of debt based on a series of factors,including company’s size,future development,and current economic situation.If the company's financing environment is good,the economic situation is clear,and the internal financial situation is relatively stable,then the debt ratio can be appropriately increased,and the relative equity fund ratio can be reduced.From the perspective of the asset-liability ratio from 2017 to 2019,Longfor Real Estate has a large debt ratio.Enterprises should adjust their capital structure,strive to reduce the proportion of debt funds,optimize their capital structure,and make their capital structure more rational.

　　(2)Adopt a diversified investment strategy and risk strategy

　　Real estate projects are affected by geography,and have different geographic locations.For example,real estate projects are affected in the following parts.For example,in different cities,the consumption level,economic environment,and market demand are right.Therefore,the investment income obtained is also different.Longfor Real Estate's real estate projects are middle to high-end products and mostly located in cities with limited purchases,so macro-policy regulation is inevitable.Only diversified project investments are adopted to disperse real estate projects in different places.Longfor Real Estate Company can conduct investment investigations in multiple places,and formulate meticulous research methods to evaluate the rationality and feasibility of investment plans in different regions in order to select the best investment projects.

　　(3)Sound sales model of real estate projects

　　Longfor Real Estate's current sales strategy is too simple.The company did not make a reasonable sales model face different market environments and consumer groups.Therefore,it is recommended that Longfor formulate a feasible measure plan based on the business mission statement of each real estate project,with fully achieve the completion of budget tasks and economic indicators,and play the role of each functional department of the company to make more profit.[21]For sales methods,company should aim at the market environment of the project,target local customers with new develop marketing methods.Meanwhile,enterprise should use the latest online media on marketing.In the management of sales,Longfor should base on the actual situation of the company to formulate management methods that conform to the characteristics of the company.This method will continuously enhance the sales consciousness of the sales staff and encourage the enthusiasm of the staff to work.

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　　First of all,I want to thank my mentor Professor ,no matter how busy the work is,he have provided patient guidance for my thesis from the initial paper selection,the research of the opening report,to the framework of the paper,research methods.The teacher gave me precious advice and enlightenment.

　　My college stage is coming to an end.These four years are like arrows of time.In the four years study and life,I have been taught many things.I am very grateful for this four-year study career,so that I have gained a wealth of knowledge.Thanks to the teacher who taught me during these four years,so that I have an understanding of the accounting industry.Thanks to the classmates who encouraged me to help and encourage me in my usual study and life,so that I can finish my studies smoothly.Thanks to my family for their support and understanding of me,their selfless dedication to me and contribute me.

　　In the days to come,I will redouble my efforts;keep in mind the school motto of Liaoning University.Besides,I use my studies to reward the society,be practical,and do things seriously.Finally,I would like to thank the reviewer of the paper and the reviewer who participated in the defense!Because of my limited knowledge and level,I hope that the omissions in this article can be criticized and corrected.