Hubei Lantian Harvard Case Solution & Analysis

Hubei Lantian Case Study Solution

As per the facts reflected in the case, the inventory holding period-related to Hubei Lantian is 71 days for which the inventory has been held normally but this inventory holding period seems to be lower in comparison to the rest of the competitors operating in the same sector.This reflects that Hubei may not be able to meet the unexpected customer demand which will indirectly have an impact upon the future cash flows of business.Instead, Hubei Lantian was able to manage its net profit margin effectively, it is almost 23.45% which is higher in comparison to the profit margin of rivals.The return on equity ROE on the other hand is almost 19.81% and this is also reflecting an increasing trend in this sector.

Thus, after taking into consideration the analysis that is related to the financial performance of Hubei Lantian, there are some concerns. Hence, the most significant concern is that if Emily Wang wants to enter into a binding agreement in order to make the acquisition process possible and effective then there is a need to remain vigilant. The reason that is stated with regards to be aware is because of the statement made by China Securities Regulatory Commission CSRC about Lantian that it has made a submission of fake documents related to the company’s performance.

1.   Assessment of Hubei Lantian’s quality of earnings

After taking into consideration the quality of earnings of Hubei Lantian this is worth mentioning that this increasing trend in earnings will prove beneficial for the shareholders of an acquirer as well as for the share-owners of the target company. As a result, if the increase in these earnings is quite significant then the shareholders will get excessive returns. The retained earnings seems to be lower initially but later on there was an increase of almost 78.26% which is quite significant.

However, the rate at which the retained earnings are growing is almost 6.75% which will also assist in the increase of the stock price of Hubei Lantian and ultimately the shareholders will be able to get increased dividend payments. This will in turn give rise tothe availability of sufficient earnings that will be distributed among the existing as well as the prospective shareholders equally. Most importantly there is an increase of almost 52.00% in the diluted earnings per share but weighted average earnings per share EPS on the other hand are reflecting an increase of almost 23.00%. Hence this means that the stock price of Hubei Lantian is higher on the market which will give rise to the generation of excessive returns into the company.

Having said this, there is an increase of almost 143% in shareholders equity which reflects the amount by which the financing of a company is performed by making use of preferred shares and ordinary shares. Hence, this increase of 143% is justifiable and Hubei Lantian will have the ability to bring further increase in its retained earnings through its operations.However,it should be taken into consideration that the accounts which are presented by Hubei Lantianare giving a true and fair view with regards to the financial performance as well as its financial position..............

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