FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Yuehua Telecom Inc. and Guangxin Technology Ltd. are two competing ICT corporations based in Shenzhen Special Economic Zone, China. Both companies’ stocks are traded at Shenzhen Stock Exchange. The comparative financial statements of Yuehua and Guangxin for the last four years (2016 – 2019) are shown in the Attachments 1 and 2:
Instructions:
1. (A) Calculate the following ratios for each corporation for 2017, 2018, and 2019.
Current ratio - Sales to total assets ratio
- Return on total assets ratio
- Return on shareholders’ equity ratio
- Gross profit ratio
- Net profit ratio
- Debt to equity ratio
- Earnings per share
- Price/earnings ratio
(B) Evaluate each company’s trends for sales, gross profit, and net income as disclosed on the comparative income statement.
2. What is your evaluation of the following?
- The liquidity of each corporation.
- Profitability.
- The financial structure of each corporation.
- The stock market’s perceptions of these companies.
3. Which corporation do you think would be a better investment if you were planning to purchase common shares? Why?
Note:
There are two attachments are attached velow.
Attachment 1: Comparative
Attachment 2: Comparative income statement
![Attachment 2: Comparative Income Statement
Comparative Income Statement
Yuehua Telecom Inc. and Guangxin Technology Ltd.
For the Years Ended at December 31: 2016, 2017, 2018, 2019
(Currency Unit in Million Chinese Yuan, ¥1,000,000)
Yuehua Telecom Inc.
Guangxin Technology Ltd.
2019
2018
2017
2016
2019
2018
2017
2016
¥330
75
¥528
¥320
Sales
Cost of Goods Sold
Gross Profit
Operating Expenses
Income from Operations
Interest Expense
Income (Loss) before Income Taxes
Income Taxes [(Recovered)]
Net Income (Loss)
¥600
¥540
¥516
¥330
¥270
460
430
420
410
105
100
90
140
110
108
106
225
145
220
180
56
50
50
50
85
105
100
96
86
84
60
58
56
140
40
60
120
14
70
60
60
60
60
58
29
60
56
80
(20)
[(10)]
半10)
24
35
30
28
40
30
12
¥35
¥30
羊29
半28
¥40
¥30
羊12
Dividends Declared
Preferred
¥10
¥10
¥10
¥10
¥20
¥0
¥10
¥10
Common
¥12
¥10
¥10
¥10
¥15
¥0
¥10
¥10
Market Price Per Common Share
¥1,250
¥1,000
¥950
¥900
¥800
¥200
¥1,200
¥100
(In Single-Unit Chinese Yuan, Not in Million)
* According to the tax law of Shenzhen Special Economic Zone, a 'strategic' ITC company that suffered a loss in a fiscal year can ask for a
refund of 50% (i.e., corporate tax rate) of the loss amount from the tax paid in previous fiscal year. So [(10)]' means Guangxin got a ¥10
million refund of tax from government. Thus, the net loss for Guangxin for 2018 is:
- 20 - (- 10) = - 20 + 10 = - 10.](https://content.bartleby.com/qna-images/question/cc82daa2-f311-483c-a702-c2deee1df248/28bb3ae2-1794-42b8-9e2a-8056c295c970/v4j6avb_processed.png)
Transcribed Image Text:Attachment 2: Comparative Income Statement
Comparative Income Statement
Yuehua Telecom Inc. and Guangxin Technology Ltd.
For the Years Ended at December 31: 2016, 2017, 2018, 2019
(Currency Unit in Million Chinese Yuan, ¥1,000,000)
Yuehua Telecom Inc.
Guangxin Technology Ltd.
2019
2018
2017
2016
2019
2018
2017
2016
¥330
75
¥528
¥320
Sales
Cost of Goods Sold
Gross Profit
Operating Expenses
Income from Operations
Interest Expense
Income (Loss) before Income Taxes
Income Taxes [(Recovered)]
Net Income (Loss)
¥600
¥540
¥516
¥330
¥270
460
430
420
410
105
100
90
140
110
108
106
225
145
220
180
56
50
50
50
85
105
100
96
86
84
60
58
56
140
40
60
120
14
70
60
60
60
60
58
29
60
56
80
(20)
[(10)]
半10)
24
35
30
28
40
30
12
¥35
¥30
羊29
半28
¥40
¥30
羊12
Dividends Declared
Preferred
¥10
¥10
¥10
¥10
¥20
¥0
¥10
¥10
Common
¥12
¥10
¥10
¥10
¥15
¥0
¥10
¥10
Market Price Per Common Share
¥1,250
¥1,000
¥950
¥900
¥800
¥200
¥1,200
¥100
(In Single-Unit Chinese Yuan, Not in Million)
* According to the tax law of Shenzhen Special Economic Zone, a 'strategic' ITC company that suffered a loss in a fiscal year can ask for a
refund of 50% (i.e., corporate tax rate) of the loss amount from the tax paid in previous fiscal year. So [(10)]' means Guangxin got a ¥10
million refund of tax from government. Thus, the net loss for Guangxin for 2018 is:
- 20 - (- 10) = - 20 + 10 = - 10.
Transcribed Image Text:Attachment 1: Comparative Statement of Financial Position
Comparative Statement of Financial Position
Yuehua Telecom Inc. and Guangxin Technology Ltd.
At December 31 of the Years 2016, 2017, 2018, and 2019
(Currency Unit in Million Chinese Yuan, ¥1,000,000)
Xuehua Telecom Inc.
Guangxin Technology Ltd.
2019
2018
2017
2016
2019
2018
2017
2016
Assets
Current Assets
¥185
¥165
¥155
¥140
¥480
¥450
¥410
¥381
Non-current Assets, at Carrying Amount
Total Assets
535
397
392
378
¥518
599
603
572
¥982
601
¥720
¥562
¥547
¥1,079
¥1,053
¥982
Liabilities
Current Liabilities
Bonds Payable
¥160
¥135
¥130
¥110
¥272
¥251
¥170
¥180
12% Due in 10 Years
120
15% Due in 7 Years
400
400
400
570
400
Total Liabilities
280
135
130
110
672
651
580
Shareholders' Equity
Share Capital
Preferred: 200,000 shares each
Common
200
200
200
200
200
200
200
200
Yuehua: 100,000 shares
Guangxin: 50,000 shares
100
100
100
100
50
50
50
50
Retained Earnings
Total Equity
140
127
117
108
157
152
162
152
440
427
417
408
407
402
412
402
Total Liabilities and Equity
¥720
¥562
¥547
¥518
¥1,079
¥1.053
¥982
¥982
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