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:

A. Calculate the following ratios for each corporation for 2017, 2018, and 2019. (30%)

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

Evaluate each companys trends for sales, gross profit, and net income as disclosed on the comparative income statement. (10%)

What is your evaluation of the following?

The liquidity of each corporation (10%) Profitability (10%) The financial structure of each corporation (10%) The stock markets perceptions of these companies (10%)

Which corporation do you think would be a better investment if you were planning to purchase common shares? Why? (20%) 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)

Yuehua 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 535 397 392 378 599 603 572 601 Total Assets 720 562 547 518 1,079 1,053 982 982 Liabilities Current Liabilities 160 135 130 110 272 251 170 180 Bonds Payable 12% Due in 10 Years 120 0 0 0 15% Due in 7 Years ____ ____ ____ ____ 400 400 400 400 Total Liabilities 280 135 130 110 672 651 570 580 Shareholders Equity Share Capital Preferred: 200,000 shares each 200 200 200 200 200 200 200 200 Common Yuehua: 100,000 shares 100 100 100 100 Guangxin: 50,000 shares 50 50 50 50 Retained Earnings 140 127 117 108 157 152 162 152 Total Equity 440 427 417 408 407 402 412 402 Total Liabilities and Equity 720 562 547 518 1,079 1,053 982 982

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 Sales 600 540 528 516 330 330 320 270 Cost of Goods Sold 460 430 420 410 105 75 100 90 Gross Profit 140 110 108 106 225 145 220 180 Operating Expenses 56 50 50 50 85 105 100 96 Income from Operations 84 60 58 56 140 40 120 86 Interest Expense 14 0 0 0 60 60 60 60 Income (Loss) before Income Taxes 70 60 58 56 80 (20) 60 24 Income Taxes [(Recovered)]* 35 30 29 28 40 [(10)] 30 12 Net Income (Loss) 35 30 29 28 40 (10) 30 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 (In Single-Unit Chinese Yuan, Not in Million) 1,250 1,000 950 900 800 200 1,200 100

* 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.