China Green Agriculture, Inc. :CGA-US: Earnings Analysis: 2017 By the Numbers : October 24, 2017

China Green Agriculture, Inc. reports financial results for the year ended June 30, 2017.

Highlights

  • Gross margins widened from 21.56% to 24.27% compared to the same period last year, operating (EBITDA) margins now 17.32% from 27.12%.
  • Change in operating cash flow of -52.55% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
  • Earnings rose compared to same period last year, despite decline in operating and pretax margins.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017 2016 2015 2014 2013
Relevant Numbers (Annual)
Revenues 285.21 268.79 263.35 233.4 216.9
Revenue Growth (YOY) N/A N/A N/A N/A N/A
Earnings 25.15 24.7 31.45 25.51 44.77
Earnings Growth (YOY) 1.81 -21.44 23.24 -43.01 6.71
Net Margin 8.82 9.19 11.94 10.93 20.64
EPS 0.66 0.67 0.93 0.81 1.61
Return on Equity 6.55 6.65 8.92 8.11 16.61
Return on Assets 5.76 5.84 7.64 6.88 14.06

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Earnings Growth Analysis

The company’s earnings growth has been influenced by the year-on-year improvement in gross margins from 21.56% to 24.27%. However the company’s overhead costs have prevented it from fully capitalizing on these gross margin improvements. In fact, the company’s operating margins (EBITDA margins) showed no improvement over the same period last year.

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

CGA-US’s gross margin improvement has not produced any big difference in its working capital. Working capital days are currently 393.64, compared to last year’s level of 367.67 days. This leads Capital Cube to conclude that the improvements in gross margins are likely from operating decisions and not trade-offs with the balance sheet.

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

CGA-US’s year-on-year change in operating cash flow of -52.55% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.

Margins

Despite a decline in operating (EBIT) margins as well as a decline in pretax margins, the company’s earnings rose.

EBIT Margin History
PreTax Margin History

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Company Profile

China Green Agriculture, Inc. engages in the research, development, production, and sale of various types of fertilizers and agricultural products. It operates through the following segments: Fertilizer Products (Jinong), Fertilizer Products (Gufeng), and Agricultural Products (Yuxing). The Jinong segment produces humic acid-based compound fertilizers. The Gufeng segment handles the production of compound fertilizer, blended fertilizer, organic compound fertilizer, slow-release fertilizers, highly-concentrated water-soluble fertilizers, and mixed organic-inorganic compound fertilizer. The Yuxing segment develops and produces agricultural products, such as top-grade fruits, vegetables, flowers and colored seedlings. The company was founded by Tao Li on February 6, 1987 and is headquartered in Xi’an, China.

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