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Xinyuan Real Estate Co., Ltd. Message Board

  • peregrinearchery peregrinearchery Aug 29, 2012 10:44 AM Flag

    Tom Gurnee said their balance sheet would look WAY different

    If they released their "normal" accounting process income statement/balance sheet.

    He hasn't released it for a reason, even though he said he would in the CC.

    Earnings would look worse.

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    • Ok, fair point, thanks

    • ms, your intuitively obvious fact was not accepted by many posters here. They thought using percentage of completion is the equivalent of high quality earnings.

      Also, I never claim no one understands accounting. Remember, you overlook the difference between "many" and "all". Actually, I am glad you are one of those who do understand GAAP.

    • thanks for the post and I echo your comments
      In terms of cash - we heard on the call that there are 11 people on staff validating cash balances throughout the year. In addition, there is the year end, independent audit by E&Y --- so, we have 2 processes that are indepdendent of each other checking cash on an ongoing basis -- therefore, further limiting the liklihood of cash manipulation that would be needed to make % of completion manipulation viable, as suggested by a previous poster.

    • Excellent post. Thanks.

    • Garbage!! The earnings are according to GAAP

      • 1 Reply to walrathcrai
      • Your comment shows how little you know about Accounting. GAAP is the abbreviation of Generally Accepted Accounting Principles. Pay attention to the words "Principles" and "Generally". GAAP is not fixed rules, and it only gives you a framework to account for transactions. It is management to decide whether they want to follow GAAP in the aggressive or conservative way. That's where estimates kicking in. Both aggressive and conservative estimates will pass annual financial audits as long as they are still under the GAAP guidance.

        IMP, China has more "creative accountants" than everywhere else.

    • I mentioned I worked for a few consulting companies before, and Accounting is my undergraduate major. When I was still in China, all clients I worked with never let us rely too much on their public financials. Instead, they all have at least another set of internal financials, which they feel would serve the management consulting purpose better.

      The reason why I worry about the quality of XIN's current earning is that XIN's numbers are too good to be taken seriously. Seasoned businessman knows a company cannot persistently deliver extraordinary results compared to its peers unless it has overwhelming competitive advantages. Based on my competitive analysis, XIN just does have them. One can argue that XIN has good management and pays reasonable price for its properties. However, we must realize that many XIN's competitors have good management too and do not want to pay any price higher either. The reality of competition is that in industry like real estate developing, scale and efficiency are the main drivers of competitive advantages. XIN obviously does not have enough scale and efficiency, considering its relative small size and properties that scatter all over the country. It basically has no reason to report earning or revenue growth that exceed most of its more powerful peers. At last, it did report extremely good numbers, but market does not take them seriously.

    • Given Gurnee's troubles with the truth, I've never been thrilled that his is the final say over those accounting estimates.

      Unfortunately, accounting is probably my weakest investment skill, but when I've raised the "Is Gurnee a Problem for Those Estimates" question previously, I've always been assured by folks who know accounting better than I do that there's enough safeguards in place to make sure that nothing bad can happen.

      Is that your understanding, as well, or are there legitimate grounds to worry?

    • no accounting tricks -- reporting is the way it needs to be done for US markets. Glad XIN complies.

    • Duh, of course there can be manipulations under GAAP, as under any accounting system. The person on the call wasn't referring to this, however. He was asking to look at the SAIC statements. Tom Gurnee was explaining the extremely obvious difference between PRC and GAAP accounting in this instance -- percentage of completion versus completed project would give totally different numbers.

      Why don't you read the transcripts before you make claims that don't make any sense. It is not as if the "analyst" had uncovered some shenanigans. To be honest, he sounded pretty clueless about XIN in particular. He was simply making a suggestion for corroboration that has been helpful for other Chinese companies. Anyway, as another poster mentioned, the Chinese government is not allowing SAIC data to be released anymore anyway.

    • Percentage of completion method is not an accounting trick, but the estimate used in Percentage of completion method can be a trick.

      You have to know more about GAAP until you know what I am talking about. GAAP is structure of the way to account for things. Often, GAAP does give management room to manipulate numbers. If you don't think management can manipulate numbers in the short-term, you really know nothing about accounting.

      Buffett once said, he can deliver whatever net income in a particular quarter just by those "accounting tricks" under GAAP.

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