China Evergrande Group (stock code 3333.hk) is principally engaged in the property development, property investment, property management, new energy vehicle business, hotel operations, finance business, internet business and health industry business in the People's Republic of China (the ''PRC'').

The excel file "China Evergrande Group" provides the following financial information for fiscal years from December 31, 2016 to December 31, 2020.

• Balance Sheet
• Income Statement with Earnings Summary
• Financial Ratios
• 5-year Monthly Stock Prices of Evergrande
• 5-year Hang Seng Index from Jan 2015 to Dec 2020

Balance Sheet (Unit = 000s)	2016/12	2017/12	2018/12	2019/12	2020/12
Non Current Assets	237,233,000	238,805,000	304,277,000	359,763,000	396,225,000
Fixed Assets	158,279,000	192,783,000	212,582,000	69,351,000	94,292,000
Investments	61,179,000	34,941,000	77,581,000	259,959,000	267,762,000
Other Assets	17,775,000	11,081,000	14,114,000	30,453,000	34,171,000
Current Assets	1,113,635,000	1,522,947,000	1,575,751,000	1,846,814,000	1,904,934,000
Cash On Hand	304,329,000	287,722,000	204,209,000	228,767,000	180,744,000
Receivables	15,644,000	23,054,000	32,517,000	45,264,000	46,365,000
Inventory	658,857,000	953,647,000	1,093,773,000	1,328,035,000	1,406,739,000
Other Current Assets	134,805,000	258,524,000	245,252,000	244,748,000	271,086,000
Total Assets	1,350,868,000	1,761,752,000	1,880,028,000	2,206,577,000	2,301,159,000
Non Current Liabilities	424,942,000	434,689,000	411,946,000	498,005,000	443,475,000
Long Term Debt	332,164,000	376,244,000	354,857,000	427,726,000	381,055,000
Other Long Term Liabilities	92,778,000	58,445,000	57,089,000	70,279,000	62,420,000
Current Liabilities	733,394,000	1,084,855,000	1,159,456,000	1,350,035,000	1,507,253,000
Payables	182,994,000	257,459,000	423,648,000	544,653,000	621,715,000
Taxation	35,622,000	61,460,000	101,272,000	130,543,000	156,856,000
Short Term Debt	202,906,000	356,381,000	318,285,000	372,169,000	335,477,000
Other Current Liabilities	311,872,000	409,555,000	316,251,000	302,670,000	393,205,000
Total Liabilities	1,158,336,000	1,519,544,000	1,571,402,000	1,848,040,000	1,950,728,000
Owner's Equity	44,240,000	114,772,000	132,995,000	145,700,000	146,901,000
Share Capital	1,006,000	1,270,000	1,205,000	1,575,000	4,635,000
Reserves	43,234,000	113,502,000	131,790,000	144,125,000	142,266,000
Perpetual Capital Securities	-	-	-	-	-
Minority interests	148,292,000	127,436,000	175,631,000	212,837,000	203,530,000
Total Equity	192,532,000	242,208,000	308,626,000	358,537,000	350,431,000
Unit	Thousand	Thousand	Thousand	Thousand	Thousand
Currency	RMB	RMB	RMB	RMB	RMB
Number of Shares Outstanding (unit = Mn)	13,684	13,296	13,124	13,141	13,175

Income Stateent (Unit = 000s)	2016/12	2017/12	2018/12	2019/12	2020/12
Total Turnover	211,444,000	311,022,000	466,196,000	477,561,000	507,248,000
Turnover	211,444,000	311,022,000	466,196,000	477,561,000	507,248,000
Other Turnover	-	-	-	-	-
Cost of Sales	152,022,000	198,760,000	297,249,000	344,624,000	384,643,000
Gross Profit	59,422,000	112,262,000	168,947,000	132,937,000	122,605,000
Profit Before Taxation	36,862,000	77,473,000	126,765,000	74,172,000	68,245,000
Operating Profit	48,225,000	85,245,000	141,414,000	94,850,000	69,712,000
Exceptional Items	-	-	-	-	-
Associates	-203,000	1,402,000	-874,000	2,967,000	-1,379,000
Other Non-Operating Gains	-11,160,000	-9,174,000	-13,775,000	-23,645,000	-88,000
Taxation	19,245,000	40,424,000	60,218,000	40,630,000	36,845,000
Minority Interests	1,880,000	12,677,000	29,157,000	16,262,000	23,324,000
Net Profit	5,091,000	24,372,000	37,390,000	17,280,000	8,076,000
Unit	Thousand	Thousand	Thousand	Thousand	Thousand
Currency	RMB	RMB	RMB	RMB	RMB
Other Items (Unit = 000s)	2016/12	2017/12	2018/12	2019/12	2020/12
EBITDA	81,857,000	140,018,000	201,954,000	167,660,000	156,781,000
Depreciation	1,964,000	1,994,000	2,613,000	4,370,000	5,347,000
Total Dividends	7,930,403	7,067,958	18,770,000	8,658,000	2,012,000
Profit After Taxation And Dividends	-2,839,403	17,304,042	18,620,000	8,622,000	6,064,000
Interest Paid	31,668,000	52,779,000	57,927,000	68,440,000	81,722,000
Interest Capitalized	26,339,000	45,053,000	49,935,000	50,924,000	69,462,000
Non-current Assets Revaluation / Disposal	5,124,000	8,513,000	1,343,000	-	-
Turnover Growth (%)	58.83	47.09	49.89	2.44	6.22
Net Profit Growth (%)	-51.33	378.73	53.41	-53.78	-53.26

Earnings Summary	2016/12	2017/12	2018/12	2019/12	2020/12
Net Profit (Unit = Mn)	5,657	29,220	42,572	19,310	9,626
Net Profit Growth (%)	-54.01	416.49	45.7	-54.64	-50.15
Earnings Per Share	0.4134	2.1976	3.2439	1.4695	0.7306
EPS Growth (%)	-50.7	431.61	47.61	-54.7	-50.28
Dividend Per Share	0.6435	0.6435	1.6157	0.7297	0.1812
PE (X)	67.73	12.47	4.14	10.07	2.03
Yield (%)	2.3	2.35	12.04	4.93	12.24
Dividend Payout (%)	155.67	29.28	49.81	49.66	24.8
NAV	3.5898	10.4494	11.5435	12.3104	13.2251
Currency	HKD	HKD	HKD	HKD	HKD
Currency Conversion	1.11125	1.1989	1.1386	1.1175	1.1919

Financial Ratios	2016/12	2017/12	2018/12	2019/12	2020/12
Liquidity Analysis
Current Ratio (X)	1.52	1.4	1.36	1.37	1.26
Quick Ratio (X)	0.62	0.52	0.42	0.38	0.33
Solvency Analysis
Long Term Debt/Equity (%)	750.82	327.82	266.82	293.57	259.4
Total Debt/Equity (%)	1,209.47	638.33	506.14	549	487.77
Total Debt/Capital Employed (%)	86.65	108.23	93.42	93.39	90.25
Return on Investment Analysis
Return on Equity (%)	11.51	21.24	28.11	11.86	5.5
Return on Capital Employ (%)	0.82	3.6	5.19	2.02	1.02
Return on Total Assets (%)	0	1	2	0.78	0.35
Profitability Analysis
Operating Profit Margin (%)	22.81	27.41	30.33	19.86	13.74
Pre-tax Profit Margin (%)	17.43	24.91	27.19	15.53	13.45
Net Profit Margin (%)	2.41	7.84	8.02	3.62	1.59
Trading Analysis
Inventory Turnover (X)	0.32	0.33	0.43	0.36	0.36
Investment Income Analysis
Dividend Payout (%)	155.67	29.28	49.81	49.66	24.8
Related Statistics on Stock Price
Fiscal Year High	6.72	32.5	30.2	29.8	28
Fiscal Year Low	4.62	4.95	17.9	16.1	9.76
Number of Shares Outstanding (unit = Mn)	13,684	13,296	13,124	13,141	13,175

Q1. Describe Evergrande's capital structure for the period from 2016 to 2020. What are the likely factors leading to this capital structure? (Hint: Consider Evergrande's sustainable growth and its underlying components).

Q2. Based on the information given above, is this capital structure likely to be optimal? If yes, explain its merits relative to alternative capital structures. If not, discuss this capital structure's main drawbacks, as well as the relative merits of the different possible paths to a more suitable capital structure. (Hint: Discussion in Lectures 2 and 3)

Q3. Determine the weighted average cost of capital for Evergrande at the end of 2020. (Assumptions: Hong Kong risk-free rate = 1.5% and Hong Kong stock dividend yield = 6%) In your estimation of the WACC, should the constant high level of inventory be considered as part of the non-current assets as well? The value of equity is equal to the number of shares outstanding multiplied by the average of the high and low stock price of the year.

Q4. Determine the EVA of Evergrande for year 2020. Did the business operations of Evergrande add value to the group?

Month-Year	Evergarnde	HangSeng
Jan-16	3.925685	19683
Feb-16	3.917973	19112
Mar-16	4.619814	20777
Apr-16	4.442426	21067
May-16	4.010523	20815
Jun-16	3.663459	20794
Jul-16	4.121615	21891
Aug-16	4.517763	22977
Sep-16	4.416618	23297
Oct-16	4.323904	22935
Nov-16	4.467191	22790
Dec-16	4.071043	22001
Jan-17	4.576764	23361
Feb-17	4.91391	23741
Mar-17	6.068636	24112
Apr-17	7.004219	24615
May-17	11.783268	25661
Jun-17	11.816984	25765
Jul-17	18.332338	27324
Aug-17	19.933786	27970
Sep-17	22.968103	27554
Oct-17	25.328129	28246
Nov-17	21.745949	29177
Dec-17	22.715244	29919
Jan-18	21.788092	32887
Feb-18	19.554495	30845
Mar-18	20.818794	30093
Apr-18	21.282372	30808
May-18	19.385921	30469
Jun-18	16.857323	28955
Jul-18	18.248053	28583
Aug-18	23.726683	27889
Sep-18	18.500912	27789
Oct-18	16.604603	24980
Nov-18	21.887882	26507
Dec-18	20.822346	25846
Jan-19	21.799088	27942
Feb-19	21.532703	28633
Mar-19	23.175406	29051
Apr-19	22.331856	29699
May-19	18.513685	26901
Jun-19	19.446028	28543
Jul-19	18.558083	27778
Aug-19	14.420252	25725
Sep-19	14.828708	26092
Oct-19	16.995296	26907
Nov-19	16.586842	26346
Dec-19	19.179644	28190
Jan-20	15.414751	26313
Feb-20	16.645615	26130
Mar-20	12.232148	23603
Apr-20	13.088208	24644
May-20	15.447131	22961
Jun-20	19.02356	24427
Jul-20	20.68812	24595
Aug-20	17.708042	25177
Sep-20	19.273394	23459
Oct-20	15.066511	24107
Nov-20	16.068165	26341
Dec-20	14.593119	27231