AccountingJul 7, 2024 · 14 min read

Canaan Technology Financial Report Analysis: How Can Mining Enterprises Survive the Bull and Bear Cycle?

In the past few years, GNT has experienced leapfrogging changes, traversing the winds and clouds of both bull and bear markets. At the same time, the company's operating ability, profitability and financial structure have also experienced many ups and downs. Behind some of the financial data lies the resilience and adaptability of Jannan Technology in different market environments, as well as the flexible strategies it has adopted in the face of challenges. In this article, we will analyze the financial performance of Jannan Technology in the past few years and discuss its growth and development in the midst of industry fluctuations.

[if !supportLists]1. [endif]Per share indicators

Reporting Period | 2023FY | 2022FY | 2021FY | 2020FY | 2019 FY

As far as basic earnings per share is concerned, canaan technology lost money in 2019 with negative earnings per share. The reason is summarized as follows: due to the fierce competition in the market that the company faced in that year, the sales were not as expected, which led to a decline in gross profit margin, and then resulted in a loss. And the company made large-scale R&D investments or capital expenditures during the year, which failed to bring profitability for the time being. 2020 saw a decrease in loss, which was attributed to the company's adoption of some cost-control measures to optimize its production and operational efficiency, which resulted in a reduction in loss. At the same time, sales picked up, gross margins improved, and a portion of non-recurring gains emerged, helping to reduce losses.

In 2021, canaan technology's earnings increased, which can be attributed to the rise in the Bitcoin market, which drove the increase in sales and price of mining machines, improving the company's revenues and profits. Moreover, the company launched new products or services in that year, which gained market acceptance and increased the source of earnings. 2022 saw a further increase in the company's earnings, as the market demand continued to grow, leading to a sustained increase in the company's earnings, and the company's benefits from its investment in research and development began to show, as new products and technological innovations succeeded, leading to an increase in earnings. However, Garnan Technology reported another loss in 2023, with earnings per share negative again, due to the volatility of the bitcoin market, which led to a decline in sales, a decrease in sales revenues, and a lower gross margin, which resulted in a loss. Also Karnan Technology is experiencing some non-recurring expenses or risks such as inventory reconciliation and loss provisioning, which affects profitability.

In terms of net assets per share, let's analyze the change in net assets per share of canaan technology from 2019 to 2023:

The net asset per share is $1.49 in 2019, which is relatively low because the company is still in the growth stage, the asset size is not yet fully formed, and the profitability is limited. At this stage Canaan Technology is facing some start-up challenges and needs time to grow and expand.

The net asset per share is $25.46 in 2020, which is a significant increase in net asset per share, indicating that the company has achieved significant profitability and rapid expansion of its assets during the year. This represents a year in which the company implemented an effective earnings growth strategy or made some significant asset acquisitions or mergers that increased the level of net worth. By 2021 the net assets per share becomes $20.13, which is a decrease compared to the previous year, but the net assets per share still remains at a high level, indicating that the company's earnings are still relatively solid.In 2022 the net assets per share decreases to $2.79. The significant drop in net assets per share could be due to the fact that the company's earnings have been hit by the volatility in the bitcoin market and its assets have not grown or have shrunk in size. The company also faced some non-recurring expenses or risks during the year, such as inventory reconciliations and impairment provisions, which affected the level of net assets.

Net assets per share changed to $4.42 in 2023, which is a rebound in net assets per share, but still lower than the levels in 2019 and 2020, indicating that the company is struggling to cope with the volatility of the Bitcoin market and other challenges.

Overall, Canaan Technology has experienced earnings ups and downs and changes in asset size over the years, and has been particularly affected by the volatility of the Bitcoin market. The company may have made adjustments in its business strategy to adapt to different market conditions and challenges.

[if !supportLists]2. [endif]Analysis of operating capacity

Reporting period | 2023FY | 2022FY | 2021FY | 2020FY | 2019 FY

Gartner Technology's performance in terms of operational capacity in 2020, 2022 and 2023 is poor, mainly due to the Bitcoin bear market and low demand for mining machines, resulting in slow inventory turnover.

However, compared to 2020, canaan's operational performance has improved significantly in 2022 and 2023 due to (1) technology-driven improvements in the mining industry, such as the Company's ability to navigate changes in the regulatory environment through technological innovation and service optimization in order to seek long-term success in the mining industry; and (2) capital-raising and cash-flow management, such as the Company's success in raising capital through the capital markets and optimizing cash flows, which has enhanced its financial resilience and marketability. that have enhanced its financial resilience and market responsiveness; and (3) mining asset growth, such as through diversification of mining layouts and improved uptime, the Company has realized significant growth in its cryptocurrency assets, which has generated additional revenue and asset appreciation potential for the Company.

3. Profitability analysis

Reporting period | 2023FY | 2022FY | 2021FY | 2020FY | 2019 FY

Return on equity | -86.66% | 12.64% | 102.81% | -38.23% | -221.58%

Net profit margin on sales | -196.42% | 11.11% | 40.12% | -48.14% | -72.85%

Gross margin on sales | -114.19% | 35.35% | 57.17% | 8.45% | -36.34%

Cost of sales ratio | 214.49% | 64.66% | 42.84% | 91.75% | 136.52%

Net Profit/Total Operating Income | -195.84% | 11.11% | 40.11% | -48.05% | -72.72%

Cash flow from operating activities | / | -38.75% | 28.86% | 9.47% | -19.72%

In terms of return on net assets: the return on net assets of canaan technology is -221.58% in 2019, the return on net assets is negative, which indicates that the ratio of net profit to net assets is negative and the company is losing more money.In 2020, the company's return on sub-assets becomes -38.23%: the return on net assets is still negative, but it is an improvement compared to 2019, but it still indicates that the company is facing profitability challenges. By 2021, the return on net assets increases to 102.81%, reaching a high level, indicating that the company made good profits and utilized its assets better in that year.The company's return on net assets gradually decreases and falls to negative again from 2022 to 2023, as the company's profitability declines.

As far as the net sales margin is concerned, the trend is basically in line with the return on net assets and by the nearest year 2023, the company's sales revenue is currently not enough to cover the costs and expenses and the sales revenue needs to be improved.

In terms of gross profit margin on sales, from 2019 to 2023, the gross profit margin on sales of GNT increased from negative in 2019 to 57.17% in 2021, and then gradually declined and fell to negative again, which was attributed to the company's larger costs in the initial period, followed by good business conditions, and then deteriorated due to changes in the cost of goods sold and the sales price of the gross profit margin performance.

From a comprehensive point of view, the profitability of JNT has fluctuated greatly in the past few years, with ups and downs in all indicators, which have been affected by the market environment, business strategies and other factors. The Company needs to further optimize its operation and management to improve its profitability and capital utilization efficiency. The reason for canaan's poorer performance in 2020 and 2023 remains the fact that it coincides with the Bitcoin bear market, which makes it more difficult for canaan to operate.

4. Analysis of financial indicators

Reporting period | 2023FY | 2022FY | 2021FY | 2020FY | 2019 FY

Debt-to-asset ratio | 29.42% | 11.28% | 38.59% | 58.26% | 30.12%

liquidity ratio | 2.69 | 7.38 | 2.53 | 1.70 | 3.30

Quick ratio | 1.64 | 4.57 | 2.14 | 1.32 | 2.61

Equity multiplier | 1.42 | 1.13 | 1.63 | 2.40 | 1.43

Current Assets/Total Assets | 73.72% | 81.07% | 93.63% | 97.19% | 94.89%

Total current liabilities/liabilities | 93.17% | 97.36% | 95.93% | 98.12% | 95.51%

Canaan has shown some changes in the past few years in terms of its balance sheet structure and liquidity indicators:

In terms of gearing ratio, the company's gearing ratio has fluctuated over the past five years, showing an upward trend, with relatively high gearing ratios in 2020 and 2023, at 58.26% and 38.59% respectively.

In terms of current ratio, the company's current ratio has also fluctuated, showing a decreasing trend overall, with the lowest current ratio in 2023 at 1.70. this means that the company's short-term solvency is relatively weak.

The quick ratio of canaan also shows fluctuation, with the quick ratio of 1.32 in 2023, which is lower than the previous years. The quick ratio reflects the company's liquidity position after deducting inventory, and a low quick ratio implies that the company will have difficulty in repaying its debts payable in the short term.

The company's equity multiplier has fluctuated over the past five years, reaching a high of 2.40 in 2020 before declining. Equity multiplier reflects the degree of leverage of the company's assets and a higher equity multiplier implies that the company employs more debt funding.

The company's current assets to total assets ratio has similarly fluctuated over the past five years, with an overall downward trend, standing at 73.72% in 2023. Declining current assets to total assets ratio may imply that more of the company's funds are being utilized for non-current assets or investment projects.

Meanwhile the company's current liabilities as a percentage of total liabilities has also fluctuated over the past five years, standing at 93.17% in 2023. Rising current liabilities to liabilities ratio indicates that the company has more short term debt or liquid assets are not enough to cover short term debt.

Based on the changes in the gearing ratio, current ratio, quick ratio and other indicators described above, the solvency of canaan as a whole shows a downward trend. The main reasons include: (1) Rising gearing ratio, over the past five years, the company's gearing ratio has shown an upward trend, especially in 2020 and 2023, when the gearing ratio is relatively high. This means that the company is under increased pressure in terms of liabilities, and relative to the size of assets, debt accounts for a relatively high proportion, which will have an impact on solvency; (2) Decreasing current ratio, the company's current ratio also showed a decreasing trend, and the current ratio in 2023 was the lowest, at 1.70, which showed a relatively weaker short-term solvency; (3) Decreasing quick ratio, and similarly, the quick ratio showed a decreasing trend, with the The quick ratio in 2023 is 1.32, which is lower than the previous years. Quick ratio reflects the company's liquidity status after deducting inventory, and a low quick ratio implies that the company has difficulty in repaying debts payable in the short term, which also affects the debt servicing ability; (4) Decrease in the proportion of current assets to total assets, the company's proportion of current assets to total assets has also shown a decreasing trend in the past five years, which may imply that the company is using more funds for non-liquid assets or investment projects, which leads to a decrease in liquidity and thus affects the debt servicing ability; (5) Decrease in the proportion of current assets to total assets. decline, which in turn affects the solvency.

To summarize, the solvency of canaan has shown an overall downward trend in the past few years, mainly due to the combination of factors including the increase in asset-liability ratio, the decrease in current and quick ratios as well as the decrease in the proportion of current assets. This requires the Company to further optimize its asset and liability structure and improve its liquidity level to ensure the robustness and sustainability of its solvency.

Overall, in terms of revenue and profit, the Company experienced growth and decline in 2020 and 2021, respectively, with a significant increase in net profit in 2021 mainly attributed to the peak of the cryptocurrency market. However, market challenges faced in 2022 and 2023 led to significant declines in revenue and profit, especially in 2023, which saw a large net loss, demonstrating the negative impact of industry volatility on the Company's profitability. On the sales side, the decline in total sales computing power was primarily impacted by the volatility of the cryptocurrency market, with the continued decline in the market at the end of 2022 leading to a significant decline in total sales computing power, and a severe decline in the fourth quarter of 2022. The Company continued to invest more in research and development, especially the significant increase in research and development expenses in 2022, mainly to maintain competitiveness in new products and technologies, as well as to respond to market changes.

5 Comprehensive Conclusion

To summarize,canaan has experienced market ups and downs and challenges in the past five years, especially in 2022 and 2023 when it faced a significant decline in revenue and profit. Canaan has responded to the challenges through technological innovation, R&D investment and market expansion in the face of industry volatility. Overall, canaan's improved financial performance in FY2023 is mainly due to the following initiatives. Canaan has strong capabilities in ASIC chip design and has successfully designed and produced high-performance Bitcoin mining machines. In addition, the Company has leveraged its technical expertise in ASIC design to actively expand into the AI field, providing total AI solutions including AI chips, algorithm development and optimization, hardware modules, end products and software services; 2. Through strategic cooperation with specific cryptocurrency mining farms, Garnant Technology has entered into the bitcoin mining business as a second growth engine, which aims to leverage the bitcoin ecosystem to create synergies with bitcoin mining machine sales. Canaan has continued to increase computing power and improve arithmetic power to enhance the mining business, thereby reducing inventory risk and improving financial and operating performance; 3. Canaan has enhanced its assembly capabilities for bitcoin mining machines and AI chips through a combination of internal and external production resources, resulting in high quality, high throughput and stable production. Canaan has established long-term relationships with leading global suppliers to ensure efficient and stable production; 4. Effective January 1, 2023, the Company's reporting currency was changed from RMB to USD to better reflect its global business development and future strategies. This move makes canaan's financial reporting more consistent and helps to advance its strategy in the global market; 5.Canaan has made breakthroughs in a number of technological areas, such as low-voltage and high-power-efficiency operations and high computational densities, which are critical in ASICs for blockchain and AI solutions. In addition, canaan owns most of the intellectual property used and has accumulated valuable technology and multiple generations of proprietary silicon data through its long experience in ASIC design; 6. Canaan plans to continue to expand its customer base, introduce additional products and solutions, and increase revenues from a wider range of customers, despite its current reliance on a small number of customers to contribute a significant portion of its revenues.

Through these initiatives, canaan has achieved significant results in improving its technological capabilities, expanding its markets, and optimizing its operating and management costs, thereby achieving a more stable and stronger financial performance in 2023. We believe that in the future, canaan will continue to focus on market changes, maintain its competitiveness and adopt an aggressive growth strategy to achieve long-term growth.

References.

[1]. Canaan Technology Annual Report 2018-2023. Canaan. https://www.canaan.io/

[2]. Canaan Technology (CAN) Stock Price_Share Quotes_Earnings Reports_Data Reports - Snowball. https://xueqiu.com/S/CAN

[3].KRLab.(2024, February 28). Canan Technology:Revenue of $211.5 Million in 2023, Challenges and Opportunities - 36 Krypton. Title. https://www.36kr.com/p/2667424996255489

[4]. Krypton Sharing. (2023, March 7). Kannan Technology Announces Q4 2022 Earnings, Revenue of Nearly $400 Million Beats Estimates by 26%-36Krypton. Title. https://www.36kr.com/p/2161364681941255

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Canaan Technology Financial Report Analysis: How Can Mining Enterprises Survive the Bull and Bear Cycle?

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