Financial Information and Analysis for Huawei

This document provides an analysis of the financial information and performance of Huawei, including determining financial information, analyzing financial documents, conducting comparative analysis, and budget production. It includes an executive summary, introduction to Huawei, and tasks related to financial analysis. The document also includes tables and figures for better understanding. The subject is Finance for Managers, and the course code is Unit 703.

Finance for managers
Unit 703
St Name:
QN:
Dr.:
Date 2022

Table of Contents
Executive Summary.........................................................................................................................3
Introduction......................................................................................................................................4
Task 1...............................................................................................................................................5
1.1: Determine what financial information is needed and assess its validity..............................5
1.2: Analyze different financial documents and information and formulate conclusions about
financial performance levels and needs of stakeholders..............................................................6
1.3: Conduct comparative analysis of financial information and data........................................8
Task 2.............................................................................................................................................12
2.1: Identify how a budget can be produced taking into account financial constraints and
achievement of targets and accounting conventions.................................................................12
2.2: Be able to assess a budget...................................................................................................13
2.3: Identify how a budget for a complex organization can support organizational objectives
and targets whilst taking into account financial constraints and accounting conventions.........15
Task 3.............................................................................................................................................17
3.1: Identify criteria by which proposals can be judged............................................................17
3.2: Critically analyse the viability of a proposal for expenditure............................................18
3.3: Identify the strengths and weaknesses of a proposal and give feedback on the financial
proposal......................................................................................................................................19
3.4: Analyse the viability of a proposal for expenditure...........................................................20
References......................................................................................................................................22
Appendix........................................................................................................................................23

Executive Summary
I selected Huawei as the company to identify what financial data was necessary and to evaluate
its validity. Financial statement creation is a systematic and structured data collection that
adheres to logically consistent accounting practices. The primary objective is to provide a
comprehensive understanding of key financial aspects of a business. It might characterize a
situation at a certain point in time, as in an accounting system, or it can represent a series of
changes throughout a particular time period, as in a financial report. We will examine some
accounting information from Huawei Corporation to obtain a better understanding of the account
names and income statement line items. Typically, a statement of financial condition begins with
the income statement.

Introduction
Founded by REN ZHENGFEI in the southern Chinese city of SHENZHEN in 1987, Huawei is a
global provider of ICT infrastructure and smart devices. Starting out, Huawei was an agent for a
HONGKONG firm that made Private Branch Exchanges (PBX). Since the rapid growth of
technology and strategy, Huawei has branched out into three main business groups: the Carrier
Network Business Group, the Enterprise Business Group, and the Consumer Business Group, all
of which are striving to be the best in the world. With operations in over 170 countries and
regions and a workforce of over 194000 people, Huawei is able to provide services to over three
billion people around the world. The company has also set up 36 Joint Innovation Centers and 14
research and development organizations in various locations. In 2019, Huawei's global sales
reached CNY 858.8 billion, an increase of 19.1 percent from the previous year. The company's
net profit was CNY 62.7 billion, an increase of 5.6% over 2018. Operating cash flow increased
to CNY 91.4 Billion, a 22.4% year-on-year increase. Huawei is adamant about devoting 10
percent of its annual revenue to R&D and technological advancement. It invested about CNY
600 billion in R&D over the past decade, or CNY 131.7 billion in 2019. With over 96,000 people
on staff, R&D makes up over half of Huawei's total workforce. Over 90% of Huawei's 85,000+
active patents were issued for inventions as of December 31, 2019.

Task 1
1.1: Determine what financial information is needed and assess its validity.
Financial data help assess a company's financial health. Financial data analysis helps manage and
track finances. A company collects financial data from internal and external sources. Internal
resources are company records; external resources come from outside. Apple, like any other
company, can access this data.
Internal financial data is gathered through the company's accounting system, control functions
such as the sales department, and department managers, suppliers, customers, and workers.
These reports examine the department's finances, giving the accounting and finance division with
spending and earning data. The financial department may easily gather and comprehend data
from these extensive reports to establish the company's financial status.
External sources of financial data include Companies House, the company's website, financial
databases, libraries, and research studies. Internal and external financial data sources often
increase each other's accuracy. It's important to acquire financial data from both sources to
analyze the business's genuine financial situation.
A financial statement is a scientific, chronological compilation of accounting-produced financial
information. It shows a company's stability, financial situation, and other traits. Financial
information is available. The income statement data show a company's annual revenue. It shows
a period's net profit or loss. The balance sheet shows accounting activities, assets, and liabilities
at a given time. It shows owners' stock and debt commitments. The statement of retained
earnings comprises cumulative profits and dividends. We're verifying each fact. These
statements are crucial. Through the aforementioned, users can determine the business's
profitability, liquidity, efficiency, and investment ratios. Profitability ratio measures a company's
efficiency.
The liquidity ratio shows if a corporation has enough cash to cover daily expenses. The
efficiency ratio shows if a corporation can meet its long-term financial needs and create enough
money to pay down its long-term debt plus interest.

1.2: Analyze different financial documents and information and formulate conclusions
about financial performance levels and needs of stakeholders.
So, here are a few key financial papers for a company that serve as the foundation for corporate
finance. These documents are scrutinized by management, shareholders, and creditors in order to
assess a company's financial status. Data from the balance sheet, income statement, and cash
flow statement are used to construct certain important financial ratios.
These ratios are important for both internal and external stakeholders. Insiders are individuals in
administration who are the face of the industry and are directly liable for all of the company's
actions. These statistics also give information to management on the company's earnings,
operations, and efficacy. Financial statements convey all information about a company to other
parties such as banks, creditors, and investors. The income statement details the money earned
and the expenses incurred during a given time period. The statement of cash flow provides
information about the company's financial situation by reporting cash purchase activities.
Profitability ratios are one of the most used approaches for analyzing financial ratios. They have
been used to compute top management profit margins and earnings per share for shareholders.
The liquidity ratio measures a person's capacity to repay debt until it is due. The efficiency ratio
is widely used to evaluate how successfully a corporation firm uses its assets internally.
Last year, the industry recognized Huawei's competitiveness. Best Mobile Innovation for the
Connected Economy, Best Mobile Innovation for the Connected Human, Best Mobile Innovation
for Climate Action, and 5G Industry Partnership Award. Huawei scored 9th on Brand Finance's
list of the world's most valuable brands in 2022, a tribute to our brand's global significance.

Figure1: Five-Year Financial Highlights for Huawei

Source: Huawei annual report 2021.

1.3: Conduct comparative analysis of financial information and data.
Financial analysis uses financial statements to predict future financial performance and assess a
company's finances (Wild, Subramanyam & Halsey 2007.) This section analyzes the smartphone
industry's finances. First, we'll discuss smartphone profitabilit.
a. Profitability ratios:
Table1: Profitability ratios for Huawei/Apple/Samsung company
Apple Samsung Huawei
2019 2020 2019 2020 2019 2020
Gross Profit Margin 38.47% 38.34
% 46.03% 45.69
% 39.5% 38.6%
Net Profit Margin 21.17% 22.41
% 17.61% 18.19
% 7.86% 8.23%
Return on Capital Employed
(ROCE) 22.34% 28.49
% 23.60% 22.42
% 25.82% 23.86%
(Source: Researcher)

Samsung has the best GPM in 2020 and 2019 (45.69%) 46.3% Samsung spends more on
promotion, marketing, and celebrity endorsements despite increased product volume.
Apple and Huawei are pricey. Profitable, but not at full capacity. Both firms are 10% below
Samsung.
Apple's 2017 and 2018 net profit margins are better than rivals'. IDC says Apple sold 77.3
million iPhones in December. Huawei and Samsung each shipped 74.1 million phones.
b. Efficiency ratio.
Table2: efficiency ratio for Huawei/Apple/Samsung company
Turnover Ratios (In Days ) Apple Samsung Huawei
2017 2018 2017 2018 2017 2018
Inventory Turnover Ratio 13 9 70 79 72 80
Account Receivable Turnover Ratio 29 32 42 50 65 43
Account Payable Turnover Ratio 114 124 25 23 72 79
(Source: Researcher)

Customers enjoy Samsung phones. Apple's ratio is lower. Samsung sells 500 phones every
minute. Samsung has more inventory than Apple. If a batch doesn't sell, Samsung will have
surplus inventory and waste production.
Huawei's ratio mirrors Samsung's. This overburdens productivity. Threatening company output.
Huawei's P20, P20 Pro, and P30 smartphones show progress in recent years. Long-term
overproduction can ruin a company.
Samsung (50 days) and Huawei (43 days) have greater AR turnover ratios than Apple (32 days).
We evaluated Apple, Samsung, and Huawei. Apple's ability to give credits and collect cash from
customers may be to blame. Apple is more efficient than Samsung and Huawei.
Apple's accounts payable turnover ratio in 2018 was 124 days, while Samsung's was 23 and
Huawei's was 79. Apple takes longer to pay suppliers, fees, etc. Slow payment may signal poor
finances. Samsung and Huawei were quicker. Samsung eliminated payables in less than a month,
per the table. Huawei paid suppliers faster.
c. Short term solvency (Liquidity ratio)
Table3: Liquidity ratio for Huawei/Apple/Samsung company
Apple Samsung Huawei
2019 2020 2019 2020 2019 2020
Current Ratio 1.27 1.12 2.18 2.52 1.41 1.48
Quick Ratio 1.23 1.09 1.81 2.1 1.16 1.21
Absolute Liquidity Ratio 2.13 1.68 0.45 0.43 0.61 0.51

(Source: Researcher)
Samsung's current ratio in 2020 will be 2.52, higher than Apple and Huawei (1.12 and 1.48
respectively). Inventory makes it impossible to measure liquidity only by the current ratio.
Samsung topped the top three companies' current and quick ratios. A higher ratio reflects a
company's ability to pay short-term debts.
The cash ratio (absolute liquidity ratio) tells us how many times a corporation can pay its present
liabilities with cash. Apple Inc topped the other two firms in this ratio, which may be due to the
market value of Apple products. For example, a new iPhone's resale value is far more than its
initial price.

Task 2
2.1: Identify how a budget can be produced taking into account financial constraints and
achievement of targets and accounting conventions
The budget provides a comprehensive financial overview of the company's planned activities. A
corporation's target budget is the financial position statement that details how successfully the
allotted cash will be spent. Huawei's budget is defined by the company's strategic goals, as well
as its capabilities. A firm's budget may include sales, productivity, costs (variable and fixed),
profitability, and capital investment, to name a few. Budgets must be SMART (defined,
measurable, achievable, sensible, and at night before going to bed) or else they will fail.
(Ec.europa.eu, 2021).

Figure2: Budget dependencies (The Chartered Management Institute, 2013)
The objective of Huawei's strategy is the first thing to consider when designing budgets, because
budgets that are not tied to organizational strategies fail. The next phase in budget planning is to
recognize the organization's primary restriction, which is viewed as a limitation in and of itself.
A constraint might be a limit on the number of commodities a firm can sell (demand is a key
bottleneck), or a limit on the number of hours a certain sort of skilled employee can participate,
and so on. The budgeting idea is developed when an organization recognizes the true budget
limit. The next step is to assess and coordinate internal elements such as people competencies
and organizational finances.
Following this phase, the organization should investigate external impact variables such as long-
term structural, governmental, and international settings to aid in budget risk reduction.
Furthermore, the firm must synchronize the budgets of the many divisions, which comprise the
sales income, financial predictions, materials spending plan, staff cost estimate, and overhead
expenditure, known as the master budget. The master budget is a description of an organization's
accomplishment that establishes crucial to the success of sales, production, transportation, and
finance activities, ending in a cash budget, projected income statement, and balance sheet.
2.2: Be able to assess a budget.
All budgets at Huawei are flexible, including the company's overall budget and the budgets of
each particular department. This adaptability is intended to guarantee that field teams may get
more resources as their firm expands (Huang,2019).
Current outcomes are exceedingly unlikely to meet expected budget efficiency, and the
fundamental purpose of the budget is to reduce the gap between operating and financial success.
This might occur as a result of essentially erroneous mathematics in the budgeted amount,
inconsistencies in the basic arithmetic of the actual outcome, wrong budget assumptions and end
results, timeline disparities, and cost fluctuation. The budget is an evaluation indicator that
allows you to compare operational and financial performance.

The gap between actual and predicted achievement has been calculated using variances.
Managers can uncover problems that require additional investigation in order to enact remedial
steps by attempting to analyze variances. Variances include material variance, labor variance,
and overhead variance. The master budget begins with demand forecasts, which may be
accomplished by an in-depth review of previous sales trends, sales force estimates, economic
outlook, fulfilling activities, pricing changes, product mix changes, consumer research, and
direct marketing strategies. Revenue management refers to a sales forecast, which is a precise
plan of predicted purchases for the budgeting process. It can be represented in both units and
currencies.
Figure 2 Master Budget (Graybeal, et al., 2018)
The sales budget is the most important component of the master budget. Following that is the
standard cost, which determines the number of goods depending on the number of units to be
sold as well as the number of things in the beginning and open stockpiles. Another planned
factor that organization volume and cost of obtaining material for expected manufacturing and
inventories would be the material budget.

2.3: Identify how a budget for a complex organization can support organizational
objectives and targets whilst taking into account financial constraints and accounting
conventions.
It is exceedingly improbable that actual performance would be identical to budgeted
performance, therefore the primary goal of the budget is to reduce the gap between planned and
actual performance. It may arise as a result of poor mathematics in the budget numbers, faults in
the arithmetic of the actual output, incorrect budget assumptions and actual outcome, scheduling
variations, and price variance. The budget is a performance measure that allows for the
comparison of budgeted and actual performance. Variances are used to calculate the difference
between predicted and actual performance. Managers can discover problems that require
additional research in order to execute remedial action by analyzing deviations. Material
variance, labor variance, and overhead variance are all examples of variances.
Profitability and efficiency are measured using labor cost and effectiveness variations, as well as
substance cost and capacity variances. Variations in sales volume and price clearly demonstrate
the impact of pricing tier variations on productivity. Leadership can identify the source of
underperformance by analyzing variations. Material variations, for example, might occur simply
owing to changes in raw material pricing or degraded raw material quality, resulting in high
waste production levels. It is vital to take proper corrective action in order to attain peak
performance, and once the cause of a poor performance has been identified, it is fairly simple to
apply suitable corrective measures. As a result, variances aid in determining the disparity with
both estimated and actual effectiveness and in making necessary changes. Accounting would
have to be aware of the issue and follow ethical norms while aiding in the financial process and
construction. Following the establishment of a sound spending plan, the appearance of results
will assist in the formation of a reasonable and attainable image of combat operations for the
managers examining the budget. The expense analyst may and should take care to ensure that
personnel do not misinterpret budget data; for example, governance may be forced to establish
ridiculously low specifications to ensure that goals are met and surpassed. Such implications may
result in what others may regard as excessively exorbitant bonuses for bosses. (Huang,2019).

Figure 3 The role of Operating Budget (Graybeal, et al., 2018)

Task 3
3.1: Identify criteria by which proposals can be judged.
Businesses must analyze their proposals as they choose from a plethora of solid investment ideas
that produce output effectiveness. In general, the best offer may be chosen based on the right
stage (lowest risk), the largest advantage threshold (profitability), the least priced, and the
cheapest available process improvement (bpi). Organizations, on the other hand, can establish a
procedure for selecting proposals. This may include project viability, impact on objectives,
organizational risk, implications for future accounting analysis and key financial indicators
(KFI), and construction benefits and drawbacks. The administration may employ such factors to
pick the optimal approach in place, resulting in low risk but also finalization. Expenditures are
large quantities of money that have a long-term impact on a company's core goal; As a result, a
company's capital proposal should be evaluated to see whether the benefits outweigh the
drawbacks and whether the original investment will yield a return. That anytime a business
produces more money than it spends on the suggested plan while still meeting the needed interest
rate, it is entirely justified. A variety of approaches can be used to analyze the feasibility of
legislation. This research, on the other hand, will focus on a variety of methodologies.
The Tucker’s five question model is also the effective technique to judge the projects that
allows manager insight into the decision making process. The five questions are:
 Is the proposal profitable?
 Does the proposal satisfy legal requirements?
 Is the proposal fair to all stakeholders?
 Is the proposal ethical?
 Is the proposal sustainable?
By using these criteria managers can select the best proposal which leads to low risk and
effective implementation.

3.2: Critically analyse the viability of a proposal for expenditure.
Break even analysis
Break even is the sales point at which a company makes no profit nor loss. The BEP is calculated
using the formula below.
Assume that Huawei is planning to launch new smart phone and the total fixed cost of Huawei is
$2,000,000 and the unit selling price of the juice is $800 and the variable cost is $600, what may
be the BEP analysis of coconut juice.
Applying the previous formula, the BEP = 10,000 unit
Huawei should sell 10000 Units of new smart phone in order to stand in BEP where Huawei
neither generates profit nor suffers from loss. If the company is able to sell more than 10000
units of the new juice it will generate profit and if it sells less than 10000 units of new smart
phone it will suffer from loss.
Most commercial enterprises use BEP to determine investment project viability. It has
constraints, though. Several assumptions are made, such as the selling price remaining constant,
yet it may change due to inflation, demand, etc. It disregards the manufacturing-sales gap. Plant
size and production technique must be limited for an efficient BE analysis. These standards may
change. This strategy ignores production capital and its cost, an essential profit factor.
The most fundamental measure for establishing economic feasibility is the payback period.
Deny the fact that it is unavailable elsewhere owing to the limits outlined below. It is not a

method of calculating sales and profits since it ignores any economic benefits that may result in
good results. It does not account for the time worth of money. This is a popular misconception. It
is more difficult to calculate the NPV from a financial statement. In reality, correctly
determining the discount rate is difficult (cost of capital). To make appropriate decisions in
interdependently elite endeavors, offered actions should have comparable lifestyles.
3.3: Identify the strengths and weaknesses of a proposal and give feedback on the financial
proposal.
Each company uses budgetary management to choose wise investments. However, these
approaches have benefits and drawbacks. Breakeven analysis finds the minimum investment
needed to avoid harm. This technique gives clear and crucial criteria for lucrative ventures;
nonetheless, firms must acknowledge that such an endeavor is preferable to another, even if it
rarely sells as planned.
Breakeven interpretation presupposes a significant firm has a linear total revenue and operational
prediction model, which may not be true. A price hike may allow the corporation to get a
discount from the provider or retailer. The company may still need support staff, increasing
administrative costs. It ignores cost improvements and cash flow. BEP is usually short-term.
Payback period is the quickest and easiest idea evaluation method. It looks to provide many
danger indications by separating long-term developments from making time, although believing
that the longer the time frame, the larger the risk and that projects with short repayment periods
should be found. It focuses on working capital and moments, not cash flow alone. Payback
projects expand quickly due to rapid cashflow and green procurement.
Payback overlooks income growth and payback time. After break-even, it ignores economic
health. Initiatives with both benefits and costs may have a shorter operating life and lose
importance later. Even if one's input patterns differ and one is initially more solvent than another,
successive ideas may have a similar payback length. NPV examines past expenses, budgets,
predictions, and revenue growth.

Management teams use this method to analyze investment opportunities. It still requires many
estimates, and calculating the best rate of return is tough. Managers must apply multiple
investment techniques in today's fast-paced corporate climate. Each strategy has shortcomings,
while the other's strengths compensate.
3.4: Analyse the viability of a proposal for expenditure.
Assuming that, For the organization, a new projects investment analysis is given in which the
initial investment for both projects are SAR 600,000 and WACC is taken as 10% which will lead
to the calculation of net present value (Marshall, 2020).
Project 1
yea
r Cash Flows PVIF NPV
0 (600,000.00) 1 (600,000.00)
1 160,000.00 0.909090909 145,454.55
2 290,000.00 0.826446281 239,669.42
3 300,000.00 0.751314801 225,394.44
4 150,000.00 0.683013455 102,452.02
5 160,000.00 0.620921323 99,347.41
NPV 212,317.84
Project 2
yea
r Cash Flows PVIF NPV
0 (600,000.00) 1 (600,000.00)
1 250,000.00 0.909090909 227,272.73
2 300,000.00 0.826446281 247,933.88
3 310,000.00 0.751314801 232,907.59

4 180,000.00 0.683013455 122,942.42
5 190,000.00 0.620921323 117,975.05
NPV 349,031.67
IRR
project 1 23%
project 2 32%
Project 2's NPV is positive and higher than project 1's. Also IRR criterion (higher is better). And
project 2 has a greater IRR. Given all of project 1's cashflow sources, the NPV is positive. High
success rate since plan instills drive to compete with other commercial banks. If the organization
rejects it, it will fall behind the competitors.
The project will generate more money, hence its ROI is good. The bank can analyze the plan's
benefits using IRR (IRR). It's an excellent way to determine a project's long-term benefits, while
not accounting for external factors like economic risk or inflation.
For risk management, the proposal may use insurance or various cash. The risks are small, but
the organization should be prepared. These elements can be used to measure the project's cost-
effectiveness. This will reassure the project's approver.

References
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Appendix
Huawei financial statement
Source: Annual report 2021