Question

Write a financial analysis (include financial highlights and ratio analysis) for XiaoMi Corporation which are based on it's Year 2019 Annual Report.

(At least 500 words with your own words)

Answer 1

Financial highlights of XiaoMi Corporation -

Xiaomi had its fair share of ups and downs in 2019. The company just released its 2019 financial report, revealing that its total yearly revenue came in at CNY 205.8 billion (~$29 billion). This is the first time the company pulled in more than CNY 200 billion.

On the other hand, though Xiaomi’s total revenue reached a new high point, the company’s net profit still took a hit.

Xiaomi’s 2019 profits dropped to CNY 10.04 billion (~$1.4 billion) compared to CNY 13.55 billion (~$2 billion) in 2018. That’s is a substantial 26% YoY decrease.

The 2019 financial report also reveals that Xiaomi saw a jump in smartphone sales in Q4. Xiaomi claims fourth-quarter smartphone shipments saw the highest YoY growth among the top five smartphone companies with 326 million units shipped and CNY 30.8 billion (~$4.3 billion) in total revenue — a 22.8% YoY increase from Q4 2018.

Overall, the company’s smartphone segment earned it CNY 122.1 billion (~$17 billion) in 2019, which is a 7.3% YoY increase from 2018.

This is even more impressive considering that the company’s handsets are only getting more expensive.

The average selling price of a Xiaomi smartphone increased by 2.2% YoY in 2019.

We already knew the company has been trying to shed its “cheap” image by developing more premium handsets, and this report reveals it wants to strengthen its premium segment even more.

The company will continue focusing on 5G development, and we can expect handset prices to rise even further going into 2020 and beyond.

It seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.6x. For Tech companies, this ratio is within a sensible range since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.

With a debt-to-equity ratio of 15%, xiaomi's debt level may be seen as prudent. This range is considered safe as xiaomi is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. Risk around debt is very low for xiaomi, and the company also has the ability and headroom to increase debt if needed going forward.

Low debt indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company exhibits an ability to meet its near-term obligations, which isn’t a big surprise for a large-cap.

This is only a rough assessment of financial health, and I’m sure xiaomi has company-specific issues impacting its capital structure decisions.

Xiaomi has also focused its efforts on expanding its AI capabilities with regard to its IoT devices, as well as in an effort to enhance the user experience.