Question #4: Discuss the expected earnings mentioned in the prospectus and offer price compare with the actual result reported in the latest annual report and the stock price on the day off and one year after the announcement of the actual results.

MEITU was incorporated in the Cayman Islands under MEITU Inc. in July 2013, as one of the exempted companies with limited liability under the Companies Law. The business has been doing relatively well since its inception which has led to the exceptional business being generated by the company(Diri, 2017). Over the years, MEITU was incorporated into the stock market with its shares being traded publicly in the share marketplace.

The expected earnings are usually among some of the critical information which the shareholders are typically interested in at a company. There is a need for the analysis of earnings management at MEITU. The earnings could be obtained from the consolidated financial statements and information.

Earning per share is always critical as it dictates to the company the amount of money that has been realized from the operations of the company. The stock price continually fluctuates depending on the earnings of the company.

Cash, as well as the cash equivalents, are inclusive of the money in hand, short term liquid investments that have a maturity of 3months or less as well as the short-term bank deposits which are the deposits that have their original maturities over three months. The day of the announcement of the stock price and one year after the publication of the actual results differ significantly from the results that have been achieved from the earnings (Diri, 2017). Earnings per share for the shareholders need to be distributed based on the diluted market price as is consistent with the shareholder policies and procedures. Income tax expense is one of the elements that affected the financial position of MEITU as it reduced the earnings that have been made by the company by a given proportion. Overall, this reduces the shareholders’ profits.

The presence of public shares always requires a significant effort as well as expenses which do not end after the completion of an IPO. Public companies face the risk of lawsuits as well as legal actions which are related to the public shares. Earnings of a company could be taken to be the profits as well as the losses that have been incurred in the process of business operations(Diri, 2017). The expected earnings that have been mentioned in the prospectus, as well as the offer price, compare in the sense that they are directly related and are all the aspects that are affected by the income statement.

The income statement will play a significant role since the auditors will understand the key adjustments that are made to the financial statements. A company of the magnitude of MEITU needs to ensure that towards the end of a fiscal year, an analysis has been done on the financial proceeds that have been realized by the company and effective measures and approaches made which are aimed at ensuring that shareholder value has been realized.

On analysis of the consolidated statements of the cash flows, it is evident that the net cash used in investing activities increased significantly in 2017 from the figure that was reported by the company in 2016(Diri, 2017). Of course, this implies that a portion of the retained earnings which were not shared out as shareholder equity was invested back into the business to finance other activities which are likely to increase the revenue base for the company.

References

Diri, M. E. (2017). Introduction to Earnings Management (7th ed.). Basingstoke, England: Springer.

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