Canaan Technology Financial Report Analysis: How Can Mining Companies Navigate Bull and Bear Cycles?

1. Per Share Indicator Analysis

In terms of basic earnings per share, Canaan Technology reported a loss in 2019, with a negative earnings per share. This was mainly due to intense market competition that year, resulting in sales falling short of expectations and a decline in gross profit margin. At the same time, the company undertook large-scale research and development investments and capital expenditures, which did not lead to profitability in the short term. In 2020, the losses decreased as the company implemented cost control and optimized production efficiency, while sales saw a rebound, leading to an improvement in gross profit margin.

In 2021, Canaan Inc. saw a significant increase in profits, mainly due to the rise in the Bitcoin market, which drove up the sales and prices of mining machines. The company also launched new products and services, gaining market recognition. In 2022, profits further increased as market demand continued to grow, and research and development investments began to show results. However, in 2023, losses reemerged, with earnings per share turning negative, attributed to the fluctuations in the Bitcoin market that led to a decline in sales performance, as well as the impact of some non-recurring expenses.

In terms of net asset per share, there has been a fluctuating trend from 2019 to 2023. In 2019, it was 1.49 yuan, which is at a low level. In 2020, it increased significantly to 25.46 yuan, reflecting the rapid expansion of the company's asset scale. In 2021, it slightly declined to 20.13 yuan, but still maintained a high level. In 2022, it dropped sharply to 2.79 yuan, possibly impacted by fluctuations in the Bitcoin market. In 2023, it slightly rebounded to 4.42 yuan, but still remains below earlier levels.

Overall, Canaan Creative has experienced significant changes in profitability and asset size over the past few years, particularly influenced by the fluctuations in the Bitcoin market. The company continuously adjusts its business strategies to cope with various challenges in different market environments.

2. Operational Capability Analysis

Canaan Technology's operational performance in 2020, 2022, and 2023 was relatively poor, mainly due to these years coinciding with the Bitcoin bear market, resulting in weak demand for mining machines and slow inventory turnover.

However, compared to 2020, the company's operational capability has significantly improved in 2022 and 2023, mainly reflected in the following aspects:

1. Technological innovation drives improvements in mining, and the company adapts to changes in the regulatory environment through technological innovation and service optimization, seeking long-term development opportunities in the industry.

2. Improve capital raising and cash flow management, successfully utilize the capital market to raise funds and optimize cash flow, enhancing financial resilience and market response capabilities.

3. Expand mining assets by diversifying mining layouts and increasing operating time, achieving significant growth in cryptocurrency assets, bringing additional income and asset appreciation potential to the company.

3. Profitability Analysis

In terms of return on equity, Canaan Technology has experienced significant fluctuations:

• In 2019, it was -221.58%, reflecting the company's severe losses for the year.
• Improved to -38.23% in 2020, but still a negative value, indicating that profitability still faces challenges.
• Increased significantly to 102.81% in 2021, indicating a notable improvement in the company's profitability.
• Declined again and turned negative from 2022 to 2023, reflecting a further decline in profitability.

The trend of net profit margin is basically consistent with the return on equity. By 2023, sales revenue is insufficient to cover costs and expenses, and further improvements are needed.

The gross profit margin rose from a negative value in 2019 to 57.17% in 2021, and then gradually declined and turned negative again. This reflects the company's high initial costs, improved mid-term operating conditions, and a decline in the gross profit margin in the later period due to changes in sales costs and prices.

Overall, Canaan Technologies has experienced significant fluctuations in profitability in recent years, with various indicators showing ups and downs, clearly influenced by market conditions and operational strategies. The company needs to further optimize its management practices to enhance profitability and capital utilization efficiency. The performance in 2020 and 2023 was poor, mainly due to the impact of the Bitcoin bear market.

4. Financial Indicator Analysis

In recent years, the asset-liability structure and liquidity indicators of Canaan Technology have shown the following changes:

The asset-liability ratio shows an upward trend, reaching 58.26% and 38.59% in 2020 and 2023 respectively, which is relatively high.

The liquidity ratio shows an overall downward trend, dropping to 1.70 in 2023, the lowest value, reflecting relatively weak short-term debt repayment ability.

The quick ratio also shows a downward trend, with a value of 1.32 in 2023, lower than in previous years, indicating increased short-term debt repayment pressure.

The equity multiplier fluctuated significantly, reaching a peak of 2.40 in 2020, and then declined, reflecting changes in the company's utilization of debt financing.

The proportion of current assets to total assets has shown an overall downward trend, with 73.72% in 2023, which may indicate that more funds are being allocated to non-current assets or investment projects.

The proportion of current liabilities to total liabilities fluctuated, reaching 93.17% in 2023, indicating that there is a high level of short-term debt or that liquid assets are insufficient to cover short-term debt.

Comprehensive analysis indicates that Canaan Technology's debt repayment capability is overall on a downward trend, primarily due to:

1. The debt-to-asset ratio has increased, particularly high in 2020 and 2023, adding to the debt pressure.
2. The liquidity ratio and quick ratio have decreased, reflecting a weakening of short-term solvency.
3. The proportion of liquid assets has decreased, which may affect liquidity.

The company needs to further optimize its asset-liability structure and improve liquidity levels to ensure the robustness and sustainability of its debt repayment ability.

5. Comprehensive Conclusion

Canaan Technology has experienced market fluctuations and challenges over the past five years. In 2022 and 2023, it faced a significant decline in revenue and profits, but responded to the challenges through technological innovation, R&D investment, and market expansion. The improvement in financial performance in 2023 is mainly attributed to the following measures:

1. Maintain strong capabilities in ASIC chip design, successfully develop high-performance Bitcoin mining machines, and expand into the AI field.

2. Enter the Bitcoin mining business through strategic cooperation, serving as the second growth engine, enhancing the synergy with mining machine sales.

3. Combine internal and external production resources to enhance production capacity and efficiency, and establish long-term partnerships with globally leading suppliers.

4. Change the report currency to USD to better reflect global business development and future strategy.

5. Achieved breakthroughs in multiple technical fields and accumulated valuable technology and proprietary silicon data.

6. Plan to continue expanding the customer base, launching more products and solutions, and increasing revenue sources.

Through these measures, Canaan Technology has achieved significant results in technical capabilities, market expansion, operational optimization, and cost management, resulting in a more stable and robust financial performance. In the future, the company will continue to pay attention to market changes, maintain competitiveness, and adopt proactive development strategies to achieve long-term growth.