The general aim of this present thesis is to gain insight into the economic situationof both companies from published annual reports and then into the development of Huawei and Ericsson within six years, since other sources of financial data are not available to outsiders, and the analysis of the consolidated financialstatements of Huawei and Ericsson, which was prepared in accordance with IFRSs, within the six year period, gives insights into the economic situation of the two companies. To be more precise, the objectives of this essay are to analyze the financial statements of those two communication technology companies using various financial indicators in order to evaluate both balance sheets’ structures, liquidity situations and performances, then to perform a comparison between those two companies in order to study the development of both companies during the last six years and to find out how Huawei overtook its rival Ericsson and whether this success and continuous growth is still sustainable in the current global economic recession and financial crisis as well as in the future.
This thesis’s main task is to compare the analytic results of the two firms from 2011 to 2016 in order to find out to what extent Huawei has surpassed Ericsson, using the instruments of financial statement analysis. First, using the principle of Küting and Weber, we reformulated the financial statements of the two companies to make them more comparable, and then we calculated the necessary key ratios extracted from annual financial reporting so that we can make comparison and outline the company’s status in three aspects, i.e. structure, liquidity, and performance. At last, after comparison of ratios of the two companies conclusions were drawn.
Table of Contents
1. Introduction
1.1 Background and objectives of thesis
1.2 Tasks of thesis
1.3 Outline of thesis
2. Fundamentals of the concept of financial statement analysis
2.1 Definition
2.2 Objectives and functions
2.3 Procedure
2.4 Analysis areas and limitation
3. Comparison of companies
3.1 Huawei
3.1.1 Company profile
3.1.2 Accounting policies and changes
3.2 Ericsson
3.2.1 Company profile
3.2.2 Accounting policies and changes
4. Quantitative Evaluation
4.1 Reformulation of financial statement
4.1.1 Standard balance sheet
4.1.2 Reclassification of comprehensive income statement
4.2 Structure analysis
4.2.1 Asset side
4.2.2 Liability side
4.3 Liquidity analysis
4.3.1 Maturity matching analysis
4.3.2 Cash flow analysis
4.4 Performance analysis
4.4.1 Income structure analysis
4.4.2 Expenses structure analysis
4.4.3 Profitability analysis
5. Comparison of results
5.1 Asset situation
5.2 Financial situation
5.3 Profit situation
6. Conclusion
Research Objectives and Topics
This thesis aims to conduct a comparative financial statement analysis of the telecommunication companies Huawei and Ericsson from 2011 to 2016 to evaluate their economic development, competitiveness, and sustainability in the global market.
- Financial statement reformulation using the principles of Küting and Weber.
- Comprehensive structure, liquidity, and performance analysis.
- Comparative evaluation of Huawei's market expansion versus Ericsson's market position.
- Assessment of the impact of global economic conditions on corporate profitability.
- Strategic insights into the long-term sustainability of the two companies' business models.
Excerpt from the book
4.1.1 Standard balance sheet
The active side of the balance sheet shows an overview of the company's assets for a reporting date using an account form; the passive side provides information about the sources of the operational resources. In the preparation of the standard balance sheet, assets and liabilities are expediently grouped into two categories - the analytic non-current assets and current assets on the asset side as well as the balance sheet analytic equity and liabilities on the liabilities side.
In this section, we will use the Huawei’s and Ericsson’s financial statement of 2016 as an example to explain the reformulation, additional reformulated structured balance sheets from the year 2011 to 2015 in Huawei and Ericsson can be found in Appendix A.
We start from the asset side. The first item that needs to be considered is the internally generated intangible assets, but in the context of an industry comparison, here the telecommunication industry, these corrections can be left behind.34
The second one is the derivative goodwill that can be found on the assets side. The goodwill should not be allocated to the assets of the structured balance sheet according to IFRS due to the associated balance sheet policy discretion, the controversial value and the lack of meaningfulness of these amounts, and the unequal treatment of externally and internally growing companies.35 Thus, it is advisable to offset the derivative goodwill with equity.
Summary of Chapters
1. Introduction: Outlines the background of the thesis, the research objectives regarding Huawei and Ericsson, and the structure of the work.
2. Fundamentals of the concept of financial statement analysis: Explains the definition, objectives, procedures, and areas/limitations of financial analysis from the perspective of an external analyst.
3. Comparison of companies: Provides company profiles for Huawei and Ericsson and discusses their respective accounting policies and changes in recent years.
4. Quantitative Evaluation: Details the process of reformulating financial statements and calculates various ratios regarding structure, liquidity, and performance for both companies.
5. Comparison of results: Summarizes the findings of the quantitative evaluation regarding asset, financial, and profit situations of both firms.
6. Conclusion: Summarizes the thesis, highlighting that while Huawei has shown impressive growth and surpassed Ericsson, risks associated with its capital structure remain.
Keywords
Financial Statement Analysis, Huawei, Ericsson, IFRS, Ratio Analysis, Balance Sheet Reformulation, Liquidity Analysis, Profitability, Corporate Growth, Telecommunication Industry, Debt Ratio, Equity, Performance Analysis, Asset Structure, Working Capital.
Frequently Asked Questions
What is the core focus of this thesis?
This thesis focuses on the comparative financial statement analysis of two leading telecommunication companies, Huawei and Ericsson, from 2011 to 2016.
What are the primary topics covered?
The main themes include company profiles, accounting policy impacts, financial statement reformulation, structure analysis, liquidity analysis, and performance analysis.
What is the central research question?
The thesis aims to determine to what extent Huawei has surpassed Ericsson and whether its growth and success are sustainable in the current and future global economic environment.
Which scientific methods are employed?
The author uses the principles of Küting and Weber to perform financial statement reformulation, followed by horizontal and vertical ratio analysis to evaluate the companies' status.
What is discussed in the main part of the thesis?
The main part covers the quantitative evaluation, including the adjustment of financial statements, structure analysis, liquidity analysis (static and dynamic), and performance indicators like profitability and expense structures.
Which keywords characterize this work?
Key terms include Financial Statement Analysis, Huawei, Ericsson, IFRS, Ratio Analysis, Balance Sheet Reformulation, and Telecommunication Industry.
Why is the "Standard Balance Sheet" important for this study?
The standard balance sheet allows for the construction of comparable financial statements, which is crucial for evaluating the two companies accurately despite different accounting choices.
How do the authors differentiate between the internal and external analysis?
Internal analysis has full access to all company information, while external analysis, which this thesis uses, relies solely on published or disclosed information.
Why is the "dynamic gearing ratio" considered significant?
It acts as an indicator of internal financing capacity, expressing how many years it would take to pay off outstanding debt using the cash flow generated in the review year.
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- Zihan Gong (Autor:in), 2017, Comparing the development of two communication technology companies using financial statement analysis, München, GRIN Verlag, https://www.grin.com/document/377962
