Analysis On The Financial Leverage Effect Of Evergrande Group

The real estate industry is the pillar of China's national economy.Under the background of China's economy entering a new normal,the development of the real estate industry has gradually slowed down,and it presents an uneven current situation.As a highly indebted and capital-intensive industry,the asset-liability ratio of China's real estate is much higher than other industries and countries.Since the investment and development of real estate requires a large amount of financial support,it shows a high dependence on financial leverage.Debt management not only provides leverage for the growth of real estate enterprises,but also increases the debt repayment pressure and financial pressure of enterprises.High financial leverage is a prominent problem in the real estate industry,affecting the further development of housing enterprises and affecting the health and development of the entire financial industry.Due to the negative effect of excessive financial leverage on real estate companies,the solvency and cash flow of the company have plummeted.To this end,the state tried to stimulate real estate development from the demand side reform,but the results were minimal.Finally,General Secretary Xi proposed the supply-side reform measures of “three to one,one reduction and one supplement”.In order to solve the three major problems of large property market inventory,high debt and overcapacity,therefore,solving the negative effects of real estate financial leverage and reducing leverage have become the focus of real estate development.This article takes the current China's largest real estate company,Evergrande Group as the research object.This paper introduces the industry background and current situation of Evergrande,firstly.And combine the results of domestic and foreign scholars' research on financial leverage in recent years.After that,through the annual report data,the current situation of Evergrande's use of financial leverage is analyzed.And compare the two financial leverage measures of asset-liability ratio and net gearing ratio with industry data.Then,analyze the positive and negative effects of the financial leverage of Evergrande,and the causes of negative effects.Positive effects include interest tax credits and high-yield effects.Negative effects include a decline in solvency,an over-sized debt,a decline in profitability,and a large fluctuation in earnings per share and EBIT.Reasons for negative effects include capital structure,perpetual debt use,cash flow and capital utilization.After that,based on the causes of negative effects,it is suggested to reduce a negative financial leverage effect from the aspects of improving capital structure,rational use of perpetual bonds,strengthening fund management and focusing on destocking.Finally,through the analysis and research on the financial leverage effect of Evergrande,it provides reference for other real estate companies to reduce the negative effects of leverage.