XIN - showing an ugly duckling is a swan - we can do it.
In short, sales are the contracts you sign with you clients, revenue under the percentage of completion method is the (sum of) the parts of the projects that you have completed in each specific period. The latter will appear in your net income statement as revenue, the former is an additional information to your performance during a given period. If your sales in any given period are higher than your revenue as above calculated you can expect the company to grow revenue in the next periods. XIN sales are now slightly below revenue due to the credit restrictions mainly. I expect XIN sales to increase and go above revenue again once interest rates start to decrease.
Thanks, that's a really good start. When you say the sum of the projects that've been completed, does that mean the percentage already built or the percentage already sold? If the answer is built, then is the contracts data the total value of all the units sold?
For the contracts data, is the risk of buyers defaulting on their mortgages XIN's in any way, or does XIN get full payment up front and the banks assume that risk? If the answer is the banks assume the risk, doesn't that make the contract method identical to the actual revenue received? If so, it sounds like the perfect accounting method; why do we need the percentage of completion method at all?
Somewhere in the financial statements (or maybe in the Annual Reports), I feel like I read that the percentage of completion method requires estimated numbers somewhere in its accounting, and that those estimates have to be re-made each year (maybe estimates of the expected profits from each location?).
If I didn't imagine that, how do those estimates work and who makes them (and their annual updates)? Specifically, are these estimates vulnerable to interpretation/spin/aggressive vs. less aggressive future assumptions, etc.?
Revenue should be linked to the % already built. Not sure about XIN standard payment terms, maybe they are mentioned somewhere in their annual report, whilst this affet cash flow, should not affect income since banks make loans, but also take guarantees on their loans. Of course if market prices collapse everybody is losing out, bank wo will have problems to be repaid, XIN which will see business decrease, clients who will se the value of theri properties decrease vs what they have paid. % of completion calculation are affected by expected costs of the project, ie expected margins. These estimates are normally provided by management, but this is normal in a company working with multi-year projects, and yes margins assumptions should be revised every period (should be every quarter)