Dr. Dong, a security analyst, observes the following income statements from two companies, A and….
Dr. Dong, a security analyst, observes the following income statements from two companies, A and B. The two companies operate at the same industry. AB Revenue 500 500 COGS 200 200 He understands that A and B do not sell in the same market. In fact, A realizes 100% of its sales in the U.S., while B makes 65% of its revenue from China. Dr. Dong writes in the investment recommendation that both companies have the same ability of making sales and perform the same. Do you agree with him? Why?
A. As B’s revenue is largely converted from CNY to USD, its realized revenue in USD might be a result of weaker sales enhanced by strong CNY; or be a result of strong sales compromised by weak CNY. Unless the exchange rate of USD/CNY moved with a trend, during the bookkeeping cycle, Dr. Dong should not draw the conclusion that B’s revenue is purely from its sales.
B. As B’s revenue is largely converted from CNY to USD, its realized revenue in USD might be a result of weaker sales enhanced by strong CNY; or be a result of strong sales compromised by weak CNY. Unless the exchange rate of USD/CNY was volatile, during the bookkeeping cycle, Dr. Dong should not draw the conclusion that B’s revenue is purely from its sales.
c. As B’s revenue is largely converted from CNY to USD, its realized revenue in USD might be a result of weaker sales enhanced by strong CNY; or be a result of strong sales compromised by weak CNY. Unless the exchange rate of USD/CNY never changed during the bookkeeping cycle, Dr. Dong should not draw the conclusion that B’s revenue is purely from its sales.
Dr. Dong, a security analyst, observes the following income statements from two companies, A and…
