Core Competency or Cash Crunch?
Financial Analysis on LeEco
Content
Abstract ................................................................................................................................. 3
Introduction ........................................................................................................................... 4
Background ........................................................................................................................... 5
Analysis ................................................................................................................................. 6
一、Solvency analysis .................................................................................................... 6
（一）Short-term solvency analysis ......................................................................... 6 （二）Long-term solvency analysis . ......................................................................... 7 二、Operation ability analysis ......................................................................................... 7
（一） Accounts receivable turnover ratio ............................................................... 8 （二） Inventory turnover ...................................................................................... 9 （三）Current asset turnover ................................................................................... 9 （四）Total assets turnover . ..................................................................................... 9 三、Profitability analysis .............................................................................................. 10
（一）Gross profit margin ..................................................................................... 10 （二）Net income of the total assets . ...................................................................... 11 （三）Return on equity ......................................................................................... 11 四、Cash flow analysis ................................................................................................. 12 五、The existing problems and future prospects . ............................................................. 12
（一）The existing problems ................................................................................. 12 （二）Future prospects . ......................................................................................... 13
Abstract
LeEco was founded in November 2004, August 12, 2010, listed on the gem in China. LeEco is the only one listed in the video website, and it is the world's first IPO video web sites. LeEco is committed to building complete ecosystem “Platform + Content + Terminal + Application” based on the video industry and content industry and intelligent terminal, which as known as “Letv model”.
But last year, Letv capital chain crisis happened, mobile phone business to become the first victim, dozens of mobile phone suppliers and agents come to debt collection, involving about billions of dollars.
Then, in early 2017, at an internal meeting, Jia Yueting made it clear that money shortage is difficult to solve in the short-term. Mobile phones, sports and other business needs a "self-help".
The rumor has been shrouded in Letv, as early as march this year, Letv Indian market was revealed 85% cut, Letv sports and other subsidiary of LeEco are playing "cutting" drama in sequence. In May, Letv north American rout that pushed Letv into the headlines again. Recently, the news is that Letv phone sizeable layoffs, at least 50%.
Key Words:
LeEco, Cash flow，Financial analysis
Introduction
News from CNBC Tue, 23 May
LeEco cuts 325 U.S. employees, will focus on Chinese-speaking consumers
LeEco confirmed on Tuesday that it will lay off the bulk of its U.S. workforce, as CNBC first reported Monday evening. According to CNET, the company is cutting 325 employees, or 70 percent of its workforce. LeEco did not immediately respond to CNBC's request for comment.
LeEco, once referred to as the "Netflix of China," made its debut in the United States last October with a flashy press conference where it announced new smartphones and televisions, which hit retail stores such as Best Buy and Amazon shortly thereafter.
LeEco made other promises, too, like to eventually launch an electric bicycle in the U.S. The company's strategy was simple enough: to sell relatively high-end products at low prices while providing streaming video content from media partners. It quickly ran into problems, however. Expansion plans were eventually put on hold, employees noticed delayed paychecks and, earlier this week, CEO YT Jia stepped down.
Sources told CNBC the company held Town Hall meetings in three separate U.S. office locations on Tuesday at 10 a.m. where executives spoke to staff.
Ren "Richard" Hongliang, the CEO of LeEco North America, spoke at the San Jose Town Hall where he informed employees of the reduced headcount.
Executives apologized during the Town Hall meeting, one source said, where the company tried to get employees to "remember the good times," and discussed a new "LeEco 2.0" strategy. A source previously told CNBC that LeEco would focus on targeting Chinese-speaking households, which the company confirmed to CNET.
Sources said employees were then split into separate departmental meetings, where they learned their individual fates.
Most already expected what was coming, however. One source said LeEco processed PTO payouts last night, an early warning sign of what was to come. Some employees are frustrated by empty promises of equity in the company, one source said, leaving them feeling cheated.
Not leaving, it is on the way leaving. The Letv mobile employees currently has three states: leave compensation, to wait, and negotiation.
Le networks have been committed to build the streaming service model. Is it the core competitiveness or the key-factor which leading a Cash Crunch?
Background
LeEco was founded in November 2004, August 12, 2010, listed on the gem in China. LeEco is the only one listed in the video website, and it is the world's first IPO video web sites.
At present, the market value of LeEco has been listed by the beginning of the 3 billion growths for more than $400, it become the gem's most valuable company.
For a long time, Letv is committed to create a vertical integration of ecological model of “Platform + Content + Terminal + Application”, covers the Internet video, film and television production and distribution, intelligent terminal, domestic application market, e-commerce, ecological agriculture, etc., daily average more than 50 million users, monthly average of more than 350 million.
In nearly a decade, LeEco created a number of global or China first: China's professional long video website user scale first, introduced the world's first TV Internet companies own brand, the first Chinese Internet company with big film and television company; The first put forward the content of homemade strategy company in China.LeEco is becoming innovative enterprises which is most dynamic, most influential technology and cultural integration in China.
After nearly 10 years development, LeEco first created the ecological model of "Platform + Content + Terminal + Application", contains four layers architecture and nine big engines. Nine big engine contains cloud video platform and electric business platform in the Platform layer, content production and content operation in the Content layer, hardware and LetvU I system of Terminal layer. Application layer includes: Letv Store, video search and a browser. All of these make Internet life extend. Rely on technology and culture, LeEco will drive Letv ecological sustainable development.
Analysis
一、Solvency analysis
Solvency is the fundamental business survival factor, and it’s one of the important factors that decided the enterprise's financial condition. Enterprise's solvency is divided into short-term solvency and long-term solvency.
Short-term solvency can result from the ability to pay current liabilities. Long-term solvency reflects non-current liabilities. （一）Short-term solvency analysis
Table 1. Short-term solvency related data table
In short-term solvency analysis, current ratio is an important index which into wave change trend in recent years.Lower current ratio in 2013 was caused by three factors, notes payable, the increase of short-term borrowing and decreasing current ratio in 2014, but it had obvious rebound in 2015.
Due to the influence of the information network technology and the inventory arelimited, current ratio and quick ratio without too much of a difference.
Overall trend toward a reduction in cash flow ratio, a small rebound occurred in 2015. Due to the deterioration of cash flow in 2016, business activities generated cash flows is negative, lead to cash flow ratio is negative. （二）Long-term solvency analysis
Table 2. Long-term solvency related data table
From 2012 to 2015, the trend of the asset-liability ratio is increasing year by year, but overall the asset-liability ratio value is not very great, which reflect the enterprise a lot of energy and expanding business scale.So debt has some guarantee, it also can improve the profit of enterprises to a certain extent.
Interest coverage ratio shows downward trend year by year, and the decline range is big.Sothat Long-term solvency of the enterprise declined. 二、Operation ability analysis
Operation ability reflects the enterprise to use the ability of assets, asset use efficiency is high, you can get high profits with less investment.
Enterprise operation ability can be analyzed from accounts receivable turnover, asset turnover and total asset turnover.
Table 3. Operation ability related data table
（一）Accounts receivable turnover ratio
Accounts receivable turnover ratio reflects the company's accounts receivable turnover speed. From 2012 to 2016, the enterprise of accounts receivable turnover is smooth, although accounts receivable is high and sustained growth, which causes the enterprise to capital turnover too dull on accounts receivable, influence the capital turnover and solvency.
Enterprise scale expands unceasingly in recent years, the rise of the amount of accounts receivable, the higher the account receivable balance leads to the shortage of liquidity to a certain extent and the risk of recovery of accounts receivable,which can cause adverse effect on the normal financial operation.
（二）Inventory turnover
Inventory turnover ratio reflects the enterprise inventory turnover speed which is one of the important indicators reflect the operating capacity.
Inventory turnover ratio of LeEco is very high in 2012 which dropped in 2013, after then it maintains smooth.
Overall, inventory turnover speed faster, which is associated with the company's main business areas and profit model,it makes the company holds a relatively low inventory.
（三）Current asset turnover
Current assets turnover ratio reflects the enterprise current assets turnover speed, it can analysis asset utilization efficiency from the aspect of current asset which is the most liquid ones in all assets of enterprise, and further reveals the main factors influencing the quality of enterprise assets.
From 2012 to 2014, the three years of current asset turnover ratio is higher, a slight decline in 2016, current assets are relatively saving which is equivalent to the increase of the current assets investment, enterprise capital is more active, to a certain extent, to enhance the operation ability of the enterprise. Mainly because of the company's operating income continues to grow. （四）Total assets turnover
Total asset turnover is a ratio of net income in a certain period divided by the average total assets, which is a comprehensive evaluation of enterprise total assets management quality and efficiency of important indicators.
From 2012 to 2015, the total asset turnover shows the trend of increased year by year, has fallen slightly in 2016, suggests that the company's overall asset utilization increase year by year, mainly due to the company's management level and the increase in sales revenue.
In recent years, LeEco’s development and achievement is remarkable, from the operation ability analysis, both of the accounts receivable turnover and the turnover of the assets can see that the company no matter in the enterprise management, product research and development, sales have a lot of ascension, the assets of the company's efficiency is good, but the amount of accounts receivable is too big, the recovery accounts receivable risk is higher, may produce adverse effect to the company's normal financial. All the indexes have fallen at the same time in 2016, show a drop on the company's operating capacity, met with some difficulties in the company's business.
三、Profitability analysis
There is a relationship between Profitability and investors' returns. Profitability is the fundamental guarantee for creditors to withdraw the claim, it is also thecrucial ability of enterprises.
Table 4. Profitability related data table
（一）Gross profit margin
Gross profit margin reflects the company main business profit margins.
LeEco main business is based on "Letv ecology", through all kinds of terminal users provide video experience an industrial chain system, based on the Internet video industry is mainly engaged in advertising business platform (video advertising task), terminal operations (that is, the intelligent terminal products sales income), member and distribution business (including payments, copyright business and TV offering income) and other business (other business refers to the current business income has
not been a relatively small scale, as a cloud platform for video business, technology development services, etc.).
Because of expanding the scalein recent years, LeEco put a lot of energy into product development which lead to Main business cost increasing year by year. On the other hand, because of the company development, in movies, homemade network video and the terminal has achieved great success in sales, the main business under the background of the high cost of main business income is also quite significant, so even though the company's main business profit margins decline each year, combined with the development of the company, business strategy, market competitiveness of the company's main business is still very strong, the company's development potential is big, profit level is higher.
（二）Net income of the total assets
Net income of the total assets is used to evaluate enterprise the overall profitability of total assets. It is an important index of enterprise assets operation efficiency evaluation.
From 2012 to 2015, the company's total assets growth too fast is almost exponentially, the company scale is constantly expanding, so the rate of return on assets the denominator is very large.
Due to the development of the company, LeEco is committed to new product research and development and new areas of investment in recent years, which causes the growth of the company's main cost, the main cost growth faster than the growth rate of total assets, So the company's overall profit although increased year by year, but not by much, led to the return on total assets is on the decline.
Total assets of the company losses in 2016, lead tonet income of the total assets is negative.
（三）Return on equity
Return on equity can measure the company to shareholders invested capital should be efficiency.
From 2012 to 2013, the change of return on equity is not big, but the sharp decline in 2014, the reason is that the various fees and non-business expenses increasedin 2014, LeEco play on increasing the outflowsin the development and popularization of network homemade in 2014, lead to the net profit is very low in 2014, so that return on equity is not high also.
The analysis above shows that LeEco had strong profitability from 2012 to 2015, although each index showed a trend of decline, the indicators of the overall data is relatively high.According to the development strategy and prospect of the company, the company's profit is divided into multiple modules, all areas of sales income jointly promote all-round development of the company.
But the company lossesin 2016, seriously affecting the profitability of the company, itwould have a larger adverse impact on future development of the company.
四、Cash flow analysis
The cash flowsof LeEco from 2012 to 2016are as follow:
Thus, the rapid expansion of LeEco in the past two years brought serious cash flow problems.The cash flows generated by business activities are unable to meet the demand for investment of the company.
The cash flows generated by business activities of LeEco in 2016 is negative. LeEcomade $11.1 billion in equity financingin order to meet the demand of cashin investment activities.
In order to guarantee the sustainable development of the company, LeEco must face the existing cash flow problems andimproving business development mode and financing structure.
五、The existing problems and future prospects
（一）The existing problems
1.Sustainable growth rate of LeEco in 2016 is -2%.
Facingthe existing cash flow problems and increasing the pressure of money
demand, the company must change the existing situation to guarantee the steady development of the business of the company.LeEco in the development stage, needing the demand of capital inflows to meet the needs of product research and development of promotion. So LeEco need to improve business development model, continue to speed up the sales, actively looking for strategic cooperation opportunities, and further expand the financing channels.
2.Risk control caused by Scale expansion.
The company scale expands unceasingly, it has higher requirements to the company's organizational structure and management system. The company's business decisions and the difficulty of risk control is increasing.
Company need strictly control the degree of each business flow, reduce the risk of the company's efficient operation and capital.
3.To recover Accounts Receivable.
With the continuous expansion of business, the amount of accounts receivable is also rising, high accounts receivable in the company produced a certain degree of liquidity shortage.
Although the high amount of accounts receivable customer credit is higher, there is still a shortage of ability to pay. The company facing the risk of accounts receivable cannot timely recovery, it is harmful to the normal financial operation.
4. Intangible assets impairment risk.
As an enterprise of the Internet environment for the development, LeEco ’s intangible assets to total assets ratio is higher mainly caused by purchasing copyright increase. If the purchase of commercial copyright cannot be timely liquidation, or as the updating speed of the film and television play, the impairment of intangible assets may face some will affect the company's operating cash flows.
（二）Future prospects
Based on the network video service, LeEco created a unique "Letv ecological" business model through the vertical industry chain. On a full range of industrial chain bringing considerable sales, it provides a large number of capital inflows for the expansion of enterprise scale. Whichever aspects following the trend of industry development trend, LeEco constantly strengthen the company's dominant position in the field of content in the form of external procurement and internal own combination strategy. LeEco has been committed to product development and innovation of science and technology, the technology reform is to meet the constantly experience of network video users demand of one of the main safeguard. LeEco always attaches great importance to technological innovation and bring great impetus for future business development. Through technological innovation and market development, it has formed a complete independent intellectual property rights system, product development and technology officer new ability in the same industry leading position. Launch of the smart phones and smart TV terminal products expand the size of the
market, providing a wide range of users for video.
The company established a perfect corporate governance structure, with high efficiency, reasonable decision-making mechanism, effectively guarantee the steady development of the company. To the core management team and technical personnel, LeEco provides a continuing incentive mechanism to ensure the enterprise's management goal is consistent with the goals of shareholders to improve the stability of the team with enthusiasm. Company’s leading ecological strategy leads content resource, application service and seamless link among users to provide the utmost and eventually advertising to acquire multidimensional earnings. "Ecological" synergies will speed up to realize the business scale and user resources accumulated leapfrog development, rapidly promote the brand influence, andestablish the foundation for the company ’s future development.
Core Competency or Cash Crunch?
Financial Analysis on LeEco
Content
Abstract ................................................................................................................................. 3
Introduction ........................................................................................................................... 4
Background ........................................................................................................................... 5
Analysis ................................................................................................................................. 6
一、Solvency analysis .................................................................................................... 6
（一）Short-term solvency analysis ......................................................................... 6 （二）Long-term solvency analysis . ......................................................................... 7 二、Operation ability analysis ......................................................................................... 7
（一） Accounts receivable turnover ratio ............................................................... 8 （二） Inventory turnover ...................................................................................... 9 （三）Current asset turnover ................................................................................... 9 （四）Total assets turnover . ..................................................................................... 9 三、Profitability analysis .............................................................................................. 10
（一）Gross profit margin ..................................................................................... 10 （二）Net income of the total assets . ...................................................................... 11 （三）Return on equity ......................................................................................... 11 四、Cash flow analysis ................................................................................................. 12 五、The existing problems and future prospects . ............................................................. 12
（一）The existing problems ................................................................................. 12 （二）Future prospects . ......................................................................................... 13
Abstract
LeEco was founded in November 2004, August 12, 2010, listed on the gem in China. LeEco is the only one listed in the video website, and it is the world's first IPO video web sites. LeEco is committed to building complete ecosystem “Platform + Content + Terminal + Application” based on the video industry and content industry and intelligent terminal, which as known as “Letv model”.
But last year, Letv capital chain crisis happened, mobile phone business to become the first victim, dozens of mobile phone suppliers and agents come to debt collection, involving about billions of dollars.
Then, in early 2017, at an internal meeting, Jia Yueting made it clear that money shortage is difficult to solve in the short-term. Mobile phones, sports and other business needs a "self-help".
The rumor has been shrouded in Letv, as early as march this year, Letv Indian market was revealed 85% cut, Letv sports and other subsidiary of LeEco are playing "cutting" drama in sequence. In May, Letv north American rout that pushed Letv into the headlines again. Recently, the news is that Letv phone sizeable layoffs, at least 50%.
Key Words:
LeEco, Cash flow，Financial analysis
Introduction
News from CNBC Tue, 23 May
LeEco cuts 325 U.S. employees, will focus on Chinese-speaking consumers
LeEco confirmed on Tuesday that it will lay off the bulk of its U.S. workforce, as CNBC first reported Monday evening. According to CNET, the company is cutting 325 employees, or 70 percent of its workforce. LeEco did not immediately respond to CNBC's request for comment.
LeEco, once referred to as the "Netflix of China," made its debut in the United States last October with a flashy press conference where it announced new smartphones and televisions, which hit retail stores such as Best Buy and Amazon shortly thereafter.
LeEco made other promises, too, like to eventually launch an electric bicycle in the U.S. The company's strategy was simple enough: to sell relatively high-end products at low prices while providing streaming video content from media partners. It quickly ran into problems, however. Expansion plans were eventually put on hold, employees noticed delayed paychecks and, earlier this week, CEO YT Jia stepped down.
Sources told CNBC the company held Town Hall meetings in three separate U.S. office locations on Tuesday at 10 a.m. where executives spoke to staff.
Ren "Richard" Hongliang, the CEO of LeEco North America, spoke at the San Jose Town Hall where he informed employees of the reduced headcount.
Executives apologized during the Town Hall meeting, one source said, where the company tried to get employees to "remember the good times," and discussed a new "LeEco 2.0" strategy. A source previously told CNBC that LeEco would focus on targeting Chinese-speaking households, which the company confirmed to CNET.
Sources said employees were then split into separate departmental meetings, where they learned their individual fates.
Most already expected what was coming, however. One source said LeEco processed PTO payouts last night, an early warning sign of what was to come. Some employees are frustrated by empty promises of equity in the company, one source said, leaving them feeling cheated.
Not leaving, it is on the way leaving. The Letv mobile employees currently has three states: leave compensation, to wait, and negotiation.
Le networks have been committed to build the streaming service model. Is it the core competitiveness or the key-factor which leading a Cash Crunch?
Background
LeEco was founded in November 2004, August 12, 2010, listed on the gem in China. LeEco is the only one listed in the video website, and it is the world's first IPO video web sites.
At present, the market value of LeEco has been listed by the beginning of the 3 billion growths for more than $400, it become the gem's most valuable company.
For a long time, Letv is committed to create a vertical integration of ecological model of “Platform + Content + Terminal + Application”, covers the Internet video, film and television production and distribution, intelligent terminal, domestic application market, e-commerce, ecological agriculture, etc., daily average more than 50 million users, monthly average of more than 350 million.
In nearly a decade, LeEco created a number of global or China first: China's professional long video website user scale first, introduced the world's first TV Internet companies own brand, the first Chinese Internet company with big film and television company; The first put forward the content of homemade strategy company in China.LeEco is becoming innovative enterprises which is most dynamic, most influential technology and cultural integration in China.
After nearly 10 years development, LeEco first created the ecological model of "Platform + Content + Terminal + Application", contains four layers architecture and nine big engines. Nine big engine contains cloud video platform and electric business platform in the Platform layer, content production and content operation in the Content layer, hardware and LetvU I system of Terminal layer. Application layer includes: Letv Store, video search and a browser. All of these make Internet life extend. Rely on technology and culture, LeEco will drive Letv ecological sustainable development.
Analysis
一、Solvency analysis
Solvency is the fundamental business survival factor, and it’s one of the important factors that decided the enterprise's financial condition. Enterprise's solvency is divided into short-term solvency and long-term solvency.
Short-term solvency can result from the ability to pay current liabilities. Long-term solvency reflects non-current liabilities. （一）Short-term solvency analysis
Table 1. Short-term solvency related data table
In short-term solvency analysis, current ratio is an important index which into wave change trend in recent years.Lower current ratio in 2013 was caused by three factors, notes payable, the increase of short-term borrowing and decreasing current ratio in 2014, but it had obvious rebound in 2015.
Due to the influence of the information network technology and the inventory arelimited, current ratio and quick ratio without too much of a difference.
Overall trend toward a reduction in cash flow ratio, a small rebound occurred in 2015. Due to the deterioration of cash flow in 2016, business activities generated cash flows is negative, lead to cash flow ratio is negative. （二）Long-term solvency analysis
Table 2. Long-term solvency related data table
From 2012 to 2015, the trend of the asset-liability ratio is increasing year by year, but overall the asset-liability ratio value is not very great, which reflect the enterprise a lot of energy and expanding business scale.So debt has some guarantee, it also can improve the profit of enterprises to a certain extent.
Interest coverage ratio shows downward trend year by year, and the decline range is big.Sothat Long-term solvency of the enterprise declined. 二、Operation ability analysis
Operation ability reflects the enterprise to use the ability of assets, asset use efficiency is high, you can get high profits with less investment.
Enterprise operation ability can be analyzed from accounts receivable turnover, asset turnover and total asset turnover.
Table 3. Operation ability related data table
（一）Accounts receivable turnover ratio
Accounts receivable turnover ratio reflects the company's accounts receivable turnover speed. From 2012 to 2016, the enterprise of accounts receivable turnover is smooth, although accounts receivable is high and sustained growth, which causes the enterprise to capital turnover too dull on accounts receivable, influence the capital turnover and solvency.
Enterprise scale expands unceasingly in recent years, the rise of the amount of accounts receivable, the higher the account receivable balance leads to the shortage of liquidity to a certain extent and the risk of recovery of accounts receivable,which can cause adverse effect on the normal financial operation.
（二）Inventory turnover
Inventory turnover ratio reflects the enterprise inventory turnover speed which is one of the important indicators reflect the operating capacity.
Inventory turnover ratio of LeEco is very high in 2012 which dropped in 2013, after then it maintains smooth.
Overall, inventory turnover speed faster, which is associated with the company's main business areas and profit model,it makes the company holds a relatively low inventory.
（三）Current asset turnover
Current assets turnover ratio reflects the enterprise current assets turnover speed, it can analysis asset utilization efficiency from the aspect of current asset which is the most liquid ones in all assets of enterprise, and further reveals the main factors influencing the quality of enterprise assets.
From 2012 to 2014, the three years of current asset turnover ratio is higher, a slight decline in 2016, current assets are relatively saving which is equivalent to the increase of the current assets investment, enterprise capital is more active, to a certain extent, to enhance the operation ability of the enterprise. Mainly because of the company's operating income continues to grow. （四）Total assets turnover
Total asset turnover is a ratio of net income in a certain period divided by the average total assets, which is a comprehensive evaluation of enterprise total assets management quality and efficiency of important indicators.
From 2012 to 2015, the total asset turnover shows the trend of increased year by year, has fallen slightly in 2016, suggests that the company's overall asset utilization increase year by year, mainly due to the company's management level and the increase in sales revenue.
In recent years, LeEco’s development and achievement is remarkable, from the operation ability analysis, both of the accounts receivable turnover and the turnover of the assets can see that the company no matter in the enterprise management, product research and development, sales have a lot of ascension, the assets of the company's efficiency is good, but the amount of accounts receivable is too big, the recovery accounts receivable risk is higher, may produce adverse effect to the company's normal financial. All the indexes have fallen at the same time in 2016, show a drop on the company's operating capacity, met with some difficulties in the company's business.
三、Profitability analysis
There is a relationship between Profitability and investors' returns. Profitability is the fundamental guarantee for creditors to withdraw the claim, it is also thecrucial ability of enterprises.
Table 4. Profitability related data table
（一）Gross profit margin
Gross profit margin reflects the company main business profit margins.
LeEco main business is based on "Letv ecology", through all kinds of terminal users provide video experience an industrial chain system, based on the Internet video industry is mainly engaged in advertising business platform (video advertising task), terminal operations (that is, the intelligent terminal products sales income), member and distribution business (including payments, copyright business and TV offering income) and other business (other business refers to the current business income has
not been a relatively small scale, as a cloud platform for video business, technology development services, etc.).
Because of expanding the scalein recent years, LeEco put a lot of energy into product development which lead to Main business cost increasing year by year. On the other hand, because of the company development, in movies, homemade network video and the terminal has achieved great success in sales, the main business under the background of the high cost of main business income is also quite significant, so even though the company's main business profit margins decline each year, combined with the development of the company, business strategy, market competitiveness of the company's main business is still very strong, the company's development potential is big, profit level is higher.
（二）Net income of the total assets
Net income of the total assets is used to evaluate enterprise the overall profitability of total assets. It is an important index of enterprise assets operation efficiency evaluation.
From 2012 to 2015, the company's total assets growth too fast is almost exponentially, the company scale is constantly expanding, so the rate of return on assets the denominator is very large.
Due to the development of the company, LeEco is committed to new product research and development and new areas of investment in recent years, which causes the growth of the company's main cost, the main cost growth faster than the growth rate of total assets, So the company's overall profit although increased year by year, but not by much, led to the return on total assets is on the decline.
Total assets of the company losses in 2016, lead tonet income of the total assets is negative.
（三）Return on equity
Return on equity can measure the company to shareholders invested capital should be efficiency.
From 2012 to 2013, the change of return on equity is not big, but the sharp decline in 2014, the reason is that the various fees and non-business expenses increasedin 2014, LeEco play on increasing the outflowsin the development and popularization of network homemade in 2014, lead to the net profit is very low in 2014, so that return on equity is not high also.
The analysis above shows that LeEco had strong profitability from 2012 to 2015, although each index showed a trend of decline, the indicators of the overall data is relatively high.According to the development strategy and prospect of the company, the company's profit is divided into multiple modules, all areas of sales income jointly promote all-round development of the company.
But the company lossesin 2016, seriously affecting the profitability of the company, itwould have a larger adverse impact on future development of the company.
四、Cash flow analysis
The cash flowsof LeEco from 2012 to 2016are as follow:
Thus, the rapid expansion of LeEco in the past two years brought serious cash flow problems.The cash flows generated by business activities are unable to meet the demand for investment of the company.
The cash flows generated by business activities of LeEco in 2016 is negative. LeEcomade $11.1 billion in equity financingin order to meet the demand of cashin investment activities.
In order to guarantee the sustainable development of the company, LeEco must face the existing cash flow problems andimproving business development mode and financing structure.
五、The existing problems and future prospects
（一）The existing problems
1.Sustainable growth rate of LeEco in 2016 is -2%.
Facingthe existing cash flow problems and increasing the pressure of money
demand, the company must change the existing situation to guarantee the steady development of the business of the company.LeEco in the development stage, needing the demand of capital inflows to meet the needs of product research and development of promotion. So LeEco need to improve business development model, continue to speed up the sales, actively looking for strategic cooperation opportunities, and further expand the financing channels.
2.Risk control caused by Scale expansion.
The company scale expands unceasingly, it has higher requirements to the company's organizational structure and management system. The company's business decisions and the difficulty of risk control is increasing.
Company need strictly control the degree of each business flow, reduce the risk of the company's efficient operation and capital.
3.To recover Accounts Receivable.
With the continuous expansion of business, the amount of accounts receivable is also rising, high accounts receivable in the company produced a certain degree of liquidity shortage.
Although the high amount of accounts receivable customer credit is higher, there is still a shortage of ability to pay. The company facing the risk of accounts receivable cannot timely recovery, it is harmful to the normal financial operation.
4. Intangible assets impairment risk.
As an enterprise of the Internet environment for the development, LeEco ’s intangible assets to total assets ratio is higher mainly caused by purchasing copyright increase. If the purchase of commercial copyright cannot be timely liquidation, or as the updating speed of the film and television play, the impairment of intangible assets may face some will affect the company's operating cash flows.
（二）Future prospects
Based on the network video service, LeEco created a unique "Letv ecological" business model through the vertical industry chain. On a full range of industrial chain bringing considerable sales, it provides a large number of capital inflows for the expansion of enterprise scale. Whichever aspects following the trend of industry development trend, LeEco constantly strengthen the company's dominant position in the field of content in the form of external procurement and internal own combination strategy. LeEco has been committed to product development and innovation of science and technology, the technology reform is to meet the constantly experience of network video users demand of one of the main safeguard. LeEco always attaches great importance to technological innovation and bring great impetus for future business development. Through technological innovation and market development, it has formed a complete independent intellectual property rights system, product development and technology officer new ability in the same industry leading position. Launch of the smart phones and smart TV terminal products expand the size of the
market, providing a wide range of users for video.
The company established a perfect corporate governance structure, with high efficiency, reasonable decision-making mechanism, effectively guarantee the steady development of the company. To the core management team and technical personnel, LeEco provides a continuing incentive mechanism to ensure the enterprise's management goal is consistent with the goals of shareholders to improve the stability of the team with enthusiasm. Company’s leading ecological strategy leads content resource, application service and seamless link among users to provide the utmost and eventually advertising to acquire multidimensional earnings. "Ecological" synergies will speed up to realize the business scale and user resources accumulated leapfrog development, rapidly promote the brand influence, andestablish the foundation for the company ’s future development.