Analysis of the liquidity and solvency of the company and directions of their increase

Huawei is a private company founded in 1987 and the only company that is not listed on the Global 500. Committed to becoming the world's leading provider of ICT (information and communications) infrastructure and smart terminals. At present, Huawei has 188,000 employees, has operations in more than 170 countries and regions, and serves 3 billion people. It is the world's largest supplier of communications equipment. Huawei's core competitiveness is its proprietary and unique technologies in three aspects: 5G communication technology, Kirin chip opens a new era of mobile phone AI chips, Hongmeng system is a multi-terminal distributed operating system developed completely independently by Huawei.

Huawei: The registered capital is 40,341,131,82 million yuan (RMB), and the actual paid-in capital is 39,908,132,000 (RMB).

Huawei's shareholding structure: Huawei Technologies Co., Ltd. is 100% controlled by Huawei Investment & Holding Co., Ltd.; Huawei Investment Holding Co., Ltd. is composed of two shareholders (Ren Zhengfei holds 1.01% of the shares, and the labor union committee of Huawei Investment Holding Co., Ltd. holds 98.99% of the shares). Huawei employee shareholding is achieved through this "alliance" (virtual restricted shares).

Liquidity analysis is an analysis of the efficiency of the use of corporate funds. The circulation and turnover of corporate funds reflects the operational efficiency of the company’s supply, production, and sales operations. High efficiency, fast capital turnover and good efficiency.

Table 1 – The financial statements in the 2019 annual report

Indicator	2019.12.31	2018.12.31	Growth rate
Cash flow from operating activities	91384	74659	122.4%
Cash and short-term investments	371040	265857	139.6%
Short-term loan	7631	3771	202.4%
Long-term loan	104531	66170	158.0%

As of the end of 2019, Huawei’s cash flow from operating activities totaled RMB 91,384 million, an increase of 22.5% from RMB 74,659 million at the end of 2018. The cash flow from operating activities this year has increased, which shows that Huawei maintains its working capital. In order to achieve a healthy cash flow and a stable capital structure. However, cash and short-term loans totaled RMB 371,040 million, an increase of 39.6% from RMB 265,857 million at the end of 2018. Huawei's long-term and short-term borrowings in 2019 have increased significantly year-on-year, which is a signal of financial data worth warning. The management of cash capital and assets and liabilities in Huawei's liquidity risk management is not very complete.

Short-term solvency refers to the ability of an enterprise to repay current liabilities with current assets, and it reflects the ability of an enterprise to repay its daily due debts.

Analyze the current ratio:

Current ratio = Total current assets / Total current liabilities

Mobility ratio

2015             2016             2017             2018             2019

1,57

1,6

1,55

1,5

1,45

1,4

1,35

1,3

г Mobility ratio

The current ratio is relatively stable at around 1.5. Huawei’s average current ratio in the past five years is 1.49, indicating that its short-term debt solvency is within a controllable range, but the risks of growth deserve attention.

Analyze the quick ratio:

Quick ratio = (Current assets – Inventory) / Current liabilities

Speed ratio

1,26

1,24

1,22

1,2

1,18

1,16

1,14

1,12

1,1

1,08

1,06

^^^^^w Speed ratio

Analyze cash ratio:

Cash ratio = Monetary funds / Current liabilities

с     cash ratio

Long-term solvency refers to the ability of an enterprise to bear debts and the ability to guarantee debt repayment. The strength of long-term solvency is an important indicator of the financial security and stability of a company

Analyze the asset-liability ratio:

Asset-liability ratio = (Total liabilities / Total assets) * 100%

Table 2 – Analyze the asset-liability ratio in the 2015-2019

Indicator	2019	2018	2017	2016	2015
Total assets	858661	665792	5052 25	443634	372155
Total liabilities	563124	432727	329609	303501	253086
Assets and liabilities	65.6%	65.0%	65.2%	68.4%	68%
Total borrowing	112162	69941	399 41	44799	28986

At the end of the article, we will give the following financial recommendations: