Financial Statement Analysis Of Tonghua Grape Wine Company Limited Based On Harvard Analytical Framework

In recent years,with the upgrading of consumption and the increase of business activities,domestic demand for grape wine is strong.China has become the world's fastest growing grape wine market.Mid-range and high-range grape wine are becoming more and more popular.Under the huge demand and consumption potential,the grape wine retail market expands rapidly.However,the production and sales revenue of domestic grape wine have not increased with the increase of domestic grape wine demand.It is because of the continuous impact of imported wine and the strict restrictions on “the three public consumptions”,government vehicles and overseas trips.In the face of great opportunities and challenges,the development situation of domestic grape wine industry is very grim.Tonghua Grpae Wine Company Limited(THGW)is one of the oldest wineries in China.As a winery founded in 1937,THGW has precious winemaking experience of nearly 80 years.Since its IPO on January 15 th,2001,the stock has performed poorly.The undistributed profit of THGW has been negative for consecutive 11 years from 2007 to 2017.The net operating margin of THGW has been significantly lower than the industry average level for four consecutive years.However,in 2015,THGW adjusted its corporate strategy,comprehensively promoting the construction of e-commerce and O2 O channels in the background of the Internet era.THGW acquired 51% of the shares of Beijing Jiurunyuan e-commerce platform.This paper analyzes the financial statements of THGW from 2013 to 2017 based on Harvard analytical framework,studying the reasons for the performance improvement and the existing problems of THGW.Based on the successful experiences and existing problems,this paper raises suggestions for the future development of THGW.This paper takes the company strategy as the starting point,closely revolving around the cost-leadership strategy to carry on the strategic analysis,accounting analysis,financial analysis and prospect analysis.This paper applies case study method,literature research method and the Harvard analytical framework to analyzing THGW.Through analysis,we find that THGW has the following problems.In terms of strategy,as a company that implements cost-leadership strategy,there is a certain problem in the total cost control of THGW.The profitability of the main business needs to be improved,and the market space of THGW needs to be further expanded.In terms of finance,the provision for inventory depreciation of THGW is insufficient.The bargaining power with upstream and downstream companies needs to be improved.The financial expenses and sales expenses are growing too fast.The ability to collect accounts receivable is poor.Financial risks are increasing year by year,and the risk of cash flow disruption exists.The basic earnings per share of THGW is similar to zero,which is not worth of investment.In terms of corporate governance,THGW is suspected of whitewashing reports because of bookkeeping confusion.The internal control of THGW needs to be further strengthened.In response to the above questions,the author proposes the following suggestions.In terms of strategy,THGW should strengthen the cost control of Jiurunyuan,and improve the profitability of the its grape wine business.Also,THGW should leverage the e-commerce platform to expand the wine market space and increase online and offline marketing channels.What's more,THGW should increase brand awareness and promotion,and improve the popularity of Tonghua grape wine.In terms of finance,THGW should strengthen inventory management and improve the bargaining power with upstream and downstream companies and the ability to collect receivables.Also,THGW should reduce the growth rate of financial expenses and sales expenses,reduce the company's financial risk and ensure the company's abundant cash flow.In terms of corporate governance,THGW should improve internal control and strengthen internal supervision.Also,THGW should improve the professionalism of accountants and auditors so as to improve the quality of annual report disclosure.Last but not the least,THGW should regularly change the accounting firm that issued the audit report.