Solar manufacturers released the finalized 4Q12 financial report at the end of April. In this turbulent year, many manufacturers faced a negative gross margin due to the continuous average price decline. Luckily, prices are finally beginning to warm back up. As shown below, global market intelligence organization TrendForce’s research division EnergyTrend examined the Top 10 solar manufacturers with the highest revenue in 4Q12.

1. Financial Structure
The debt-to-asset ratio of First Solar and REC was under 0.5, suggesting a solid financial structure; the debt-to-asset ratio of Solarworld exceeded 0.8 and was also the greatest out of the 10 manufactures surveyed, which means that they may face considerable risk. The debt-to-asset ratio of other Chinese manufacturers all surpassed 0.8, and the proportion of current liabilities in their total liability was quite high; such insufficient cash may result in short-term cash flow problems.

2. Short-term solvency
Short term solvency depends on asset liquidity. The current assets of Yingli, ReneSola, Canadian Solar, and Jinko were unable to offset their current liabilities, and as shown in table below , excluding their illiquid stock, it is even more difficult for Chinese manufacturers to repay their debt in the short-term.

3. Operating Performance
Jinko, Trina Solar, and Yingli’s days sales outstanding (DSO) was higher than the average of the overall industry. Manufacturers that are facing bankruptcy must be aware of the debt quality; a prolonged loan period may result in bad debts, which, in the case of limited liquidity, may bring significant risk to the overall business.

4. Profitability
Aside from First Solar, various solar energy manufacturers have faced a yearly loss, but EnergyTrend’s database showed that at the end of 2012, the gross margins of various manufacturers started to increase. The 2012 annual shipments of most manufacturers were more than that of 2011, and several manufacturers even broke their own record. Due to the stable shipments in mature markets as well as increasing demands in Asia and emerging markets, a larger number of shipments are expected to be maintained in 2013H1.

EnergyTrend indicated that even though financial reports for 1Q13 and manufacturers both suggested an impressive number of shipments, the financial instability and difficulties of many first-tier manufacturers may still result in a financial crisis. After Europe imposed a punitive tariff (more than 30%) on China’s PV products, some manufacturers faced gross loss while others gained profit. During such hard times in the market, poor profitability will further decrease manufacturers’ level of cash, and a knock-on effect may occur if they fail to repay their debt. Manufacturers that have already shipped their products to emerging markets must not only weigh their strengths and weaknesses before they spend huge amounts of funds on building large power plants but also be aware of the risks brought by political issues or opaque market conditions.

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