Analysis of Cash Flow and Profit Divergence and Operation Quality Evaluation of Zhongchen Co., Ltd. (300933.SZ)

Zhongchen Co., Ltd. (Zhongchen Cable Co., Ltd., stock code 300933.SZ) is a high-tech enterprise focusing on R&D, production and sales of wires and cables, belonging to the Industrial-Electrical Equipment industry. The company is listed on the Shenzhen Stock Exchange with a current market capitalization of approximately 4.13 billion yuan [0].

According to financial data analysis, Zhongchen Co., Ltd. has a significant cash flow and profit divergence, and this divergence shows a continuing deterioration trend:

Time	Net Cash Ratio	Divergence Degree	Signal Type
2020	0.73	Moderate Divergence	Warning
2021	0.77	Moderate Divergence	Warning
2022	0.54	Severe Divergence	Risk
2023	0.43	Severe Divergence	Risk
2024	-0.23	Extreme Divergence	Danger

It is clear from the data that the company’s net cash ratio has continued to decline from 0.73 in 2020 to negative in 2024, meaning that the cash flow generated from operating activities can no longer cover net profit, and the profit quality has fundamentally deteriorated [0].

The company’s net profit peaked at 92 million yuan in 2021, then declined for three consecutive years to 52 million yuan in 2024, a drop of 43.5%. Meanwhile, the operating cash flow situation was more severe: 42 million yuan in 2022, 28 million yuan in 2023, and turned to

in 2024, with the cash flow gap continuing to expand and turning negative [0].

Free cash flow is the core indicator to measure the real cash creation capacity of an enterprise. Zhongchen Co., Ltd.'s free cash flow turned negative (-8 million yuan) in 2022, then the gap continued to widen to -22 million yuan in 2023 and

in 2024, indicating that the company could not generate positive cash returns after capital expenditure [0].

The ratio of accounts receivable to operating revenue rose sharply from 21.9% in 2020 to 36.8% in 2024, an increase of nearly 15 percentage points in five years. The continuous rise of this indicator shows that the proportion of cash recovery in the company’s revenue is decreasing, and a large amount of profit is occupied by customers, further confirming the problem of cash flow and profit divergence [0].

Net cash ratio is the primary indicator to measure profit quality. The health standards are: continuously greater than 1.0 is excellent, continuously greater than 0.8 is good, and less than 0.6 is risky. Zhongchen Co., Ltd.'s net cash ratio in 2024 was -0.23, far below the health standards, and there is a serious problem with profit quality [0].

Cash collection ratio (cash received from selling goods and providing services / operating revenue) reflects the efficiency of revenue realization. The continuous rise of accounts receivable of Zhongchen Co., Ltd. indicates a downward trend in the cash collection ratio, and the company will face greater pressure on account recovery [0].

Negative free cash flow for three consecutive years with a widening gap indicates a serious imbalance between the intensity of capital expenditure and cash return capacity, and low investment efficiency. If this trend continues, the company may face the risk of cash exhaustion [0].

The growth rate of accounts receivable (from 420 million yuan in 2020 to 950 million yuan in 2024, an increase of 126%) is significantly higher than the revenue growth rate (from 1.92 billion yuan to 2.58 billion yuan, an increase of 34%), indicating that the customer payment cycle is prolonged and the company’s bargaining power is weakened [0].

Inventory increased from 280 million yuan in 2020 to 480 million yuan in 2024, an increase of 71%. Although it is lower than the revenue growth rate, attention should still be paid to the risk of unsold products. Inventory backlog in the wire and cable industry may mean insufficient orders or product structure problems [0].

The company’s asset-liability ratio remains in the range of 52-55%, which is a medium level. However, financial attitude analysis shows that the company adopts an aggressive strategy (low depreciation/capital expenditure ratio), and may ease cash flow pressure by compressing supplier payment cycles [0].

The company’s net profit margin dropped from about 4.3% in 2021 to about 2.0% in 2024, a decrease of more than 50%. The ROE (return on equity) is only 1.20%, indicating extremely weak shareholder return capacity [0].

The company’s revenue growth rate plummeted from 12% in 2020 to -1.9% in 2024, showing negative growth. Considering that the proportion of accounts receivable is still rising, the company may face the dilemma of “increasing revenue without increasing profit” or even “both volume and price falling” [0].

The current P/E ratio is as high as 194.59 times, far exceeding the industry average, which is seriously inconsistent with the company’s fundamentals. High valuation is based on expectations of future growth, but the current operation quality continues to deteriorate, making it difficult to fulfill growth expectations [0].

Operating cash flow has turned negative, and free cash flow has been continuously and significantly negative. The company’s cash consumption speed is accelerating. If it cannot improve the collection efficiency or obtain external financing support, it may face a liquidity crisis [0].

Net profit continues to decline and the divergence with cash flow intensifies, indicating that the company’s profit has very low gold content. The current profit is more of an accounting statement figure rather than real cash inflow [0].

Negative revenue growth plus declining profit margin indicates that the company may have reached the industry ceiling. Against the background of intensified industry competition and fluctuations in raw material prices, it is difficult to reverse the situation [0].

Financial analysis shows that the company’s debt risk rating is “low risk”, and the current ratio of 1.86 and quick ratio of 1.33 indicate that the short-term solvency is acceptable [0].

As a participant in the segment of the wire and cable industry, the company still has certain brand accumulation and customer resources in the regional market [0].

The divergence between cash flow and profit of Zhongchen Co., Ltd. has become very serious, and the operation quality shows an overall deterioration trend. Indicators such as the net cash ratio turning negative, free cash flow being continuously negative, the proportion of accounts receivable climbing, and the net profit growth rate being continuously negative all indicate that the company has low profit quality and serious insufficient cash creation capacity. Investors are advised to remain highly cautious, focus on the company’s subsequent cash flow improvement measures and collection progress, and it is not recommended to allocate in the short term [0].

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[0] Jinling AI Financial Database - Zhongchen Co., Ltd. (300933.SZ) Financial Data and Company Overview