Written by Nandin Wu
In the past few years, Canaan has undergone a leapfrog change, traversing the bull and bear markets. At the same time, the company's operational capabilities, profitability and financial structure have also experienced many ups and downs. Behind some financial data, Canaan's tenacity and adaptability in different market environments, as well as the flexible response strategies it has adopted when facing challenges. This article will deeply analyze Canaan's financial performance in the past few years and explore its growth and development in the face of industry fluctuations.
1. Per-share indicators
In terms of basic earnings per share, Canaan Technology suffered a loss in 2019, with negative earnings per share. The reasons can be summarized as follows: Due to the fierce market competition faced by the company that year, sales were lower than expected, resulting in a decline in gross profit margin, which in turn caused losses. In addition, the company made large-scale R&D investments or capital expenditures that year, and these investments have not yet brought profits. The loss was reduced in 2020 because the company took some cost control measures to optimize production and operating efficiency, thereby reducing losses. At the same time, sales have rebounded, gross profit margins have improved, and some non-recurring gains have emerged, which will help reduce losses.
In 2021, Canaan Technology’s profit increased, which can be attributed to the rise in the Bitcoin market, which led to an increase in mining machine sales and price increases, and increased the company’s revenue and profits. In addition, the company launched new products or services during the year, which were recognized by the market and increased its profit sources. In 2022, the company’s profits increased further, and market demand continued to grow, which led to a continuous increase in the company’s profits. The company’s returns on R&D investment also began to emerge, and new products and technological innovations were successful, driving profit growth. However, Canaan Technology suffered losses again in 2023, and earnings per share were negative again. This was due to fluctuations in the Bitcoin market, which led to a decline in sales performance, a decrease in sales revenue, and a decrease in gross profit margin, resulting in losses. At the same time, Canaan Technology also encountered some non-recurring expenses or risks, such as inventory adjustments and the provision of loss reserves, which affected profitability.
In terms of net assets per share, let us analyze the changes in Canaan Technology’s net assets per share from 2019 to 2023:
The net asset per share in 2019 was 1.49 yuan. The relatively low net asset per share is because the company is still in the growth stage, the asset scale has not yet been fully formed, and profitability is limited. At this stage, Canaan Technology faces some start-up challenges and needs time to develop and expand its scale.
The net assets per share in 2020 were 25.46 yuan, and the net assets per share increased significantly, indicating that the company made significant profits this year and its asset scale expanded rapidly. This means that the company implemented an effective profitable growth strategy during the year, or made some major asset acquisitions or mergers to increase the level of net assets. By 2021, the net assets per share will become 20.13 yuan, which is a decrease from the previous year, but the net assets per share still remain at a high level, indicating that the company's profitability is still relatively stable. Net assets per share will drop to 2.79 yuan in 2022. The sharp decline in net assets per share may be due to the impact of the company's earnings due to the fluctuations in the Bitcoin market, and the asset size has not increased or has shrunk. The company also faced some non-recurring expenses or risks during the year, such as inventory adjustments, impairment provisions, etc., which affected the level of net assets.
In 2023, net assets per share became 4.42 yuan, and the net assets per share recovered, but it was still lower than the levels in 2019 and 2020, indicating that the company is struggling to cope with Bitcoin market fluctuations and other challenges.
In general, Canaan has experienced ups and downs in profits and asset size changes in the past few years, especially affected by the volatility of the Bitcoin market. The company may have adjusted its business strategy to adapt to different market environments and challenges.
2. Operational capability analysis
Canaan Technology's operating capacity will perform poorly in 2020, 2022 and 2023. The main reason is that the Bitcoin bear market has led to low demand for mining machines and slow inventory turnover.
However, compared with 2020, Canaan Technology's operations have made great progress in 2022 and 2023. The main reasons are: (1) Promoting mining improvements through technology, such as the company's ability to navigate regulation through technological innovation and service optimization Environmental changes seek to tap the long-term success of the industry: (2) Fund raising and cash flow management, such as a company successfully raising funds through the capital market and optimizing cash flow, enhancing its financial flexibility and market response capabilities; (3) Tapping asset growth, For example, through diversifying mining layouts and improving runtime, the company has achieved significant growth in cryptocurrency assets, bringing additional revenue and asset appreciation potential to the company.
3. Profitability analysis
In terms of return on equity: In 2019, Canaan Technology's return on equity was -221.58%, and the return on equity was negative, indicating that the ratio of the company's net profit to net assets was negative, and the company suffered large losses. In 2020, the company's sub-asset return rate changed to -38.23%: the return on equity was still negative, but it was an improvement compared to 2019, but it still showed that the company faced profitability challenges. By 2021, the return on equity increased to 102.81%, reaching a relatively high level, indicating that the company made good profits during the year and utilized its assets well. From 2022 to 2023, the company's return on equity gradually declined and fell to negative again, and the company's profitability declined.
In terms of net sales margin, its trend is basically consistent with the return on net assets. As of 2023, the company’s sales revenue is currently insufficient to cover costs and expenses, and sales revenue needs to be increased.
In terms of gross profit margin, from 2019 to 2023, Canaan Technology’s gross profit margin increased from a negative value in 2019 to 57.17% in 2021, and then gradually declined and fell to a negative value again. The reason is that the company’s costs were high in the early stages, and then its operating conditions were good. Later, due to changes in sales costs and sales prices, the gross profit margin performance deteriorated.
Overall, Canaan Inc.'s profitability has fluctuated greatly in the past few years, and all indicators have fluctuated, all of which have been affected by factors such as the market environment and business strategy. The company needs to further optimize its operations and management to improve profitability and capital utilization efficiency. Canaan Inc. performed poorly in 2020 and 2023, and the reason is still that it is in the Bitcoin bear market, and Canaan Inc. is difficult to operate.
4. Financial indicator analysis
Canaan Technology has shown certain changes in its asset-liability structure and liquidity indicators in the past few years:
In terms of the debt-to-asset ratio, the company's debt-to-asset ratio has fluctuated in the past five years, showing an upward trend, among which the debt-to-asset ratios in 2020 and 2023 were relatively high, at 58.26% and 38.59% respectively.
In terms of current ratio, the company's current ratio has also fluctuated, showing an overall downward trend, with the lowest current ratio in 2023 at 1.70. This means that the company's short-term debt repayment ability is relatively weak.
Canaan Inc.’s quick ratio also fluctuated, with a quick ratio of 1.32 in 2023, down from previous years. The quick ratio reflects a company’s liquidity after deducting inventory, and a lower quick ratio suggests that the company will have difficulty repaying its debts payable in the short term.
The company's equity multiplier has fluctuated over the past five years, reaching a peak of 2.40 in 2020 and then falling back. The equity multiplier reflects the degree of leverage of a company's assets. A higher equity multiplier means that the company has used more debt funding.
The proportion of the company’s current assets to total assets has also fluctuated over the past five years, showing an overall downward trend, reaching 73.72% in 2023. The decline in the proportion of current assets may mean that more of the company’s funds are being used for illiquid assets or investment projects.
At the same time, the proportion of the company’s current liabilities to total liabilities has also fluctuated over the past five years, reaching 93.17% in 2023. The increase in the proportion of current liabilities indicates that the company has a lot of short-term debt or that its liquid assets are insufficient to cover short-term debt.
According to the changes in the debt-to-asset ratio, current ratio, quick ratio and other indicators described above, Canaan Technology's overall debt repayment ability shows a downward trend. The main reasons include: (1) The debt-to-asset ratio has increased. In the past five years, the company's debt-to-asset ratio has shown an upward trend, especially in 2020 and 2023, the debt-to-asset ratio was relatively high. This means that the company's debt pressure has increased. Relative to the size of assets, the debt ratio is high, which will have a certain impact on debt repayment ability; (2) The current ratio has decreased. The company's current ratio has also shown a downward trend. The current ratio in 2023 was the lowest, at 1.70, indicating that the short-term debt repayment ability is relatively weak; (3) The quick ratio has decreased. Similarly, the quick ratio has also shown a downward trend. The quick ratio in 2023 was 1.32, which was lower than in previous years. The quick ratio reflects the company's liquidity after deducting inventory. A lower quick ratio suggests that the company will have difficulty repaying its debts in the short term, which also affects its debt repayment ability. (4) The proportion of current assets to total assets has declined. Over the past five years, the proportion of the company's current assets to total assets has also shown a downward trend. This may mean that more of the company's funds are used for non-liquid assets or investment projects, resulting in a decline in liquidity, which in turn affects its debt repayment ability.
In summary, Canaan Inc.’s debt repayment capacity has shown an overall downward trend in the past few years, mainly due to factors such as the increase in its debt-to-asset ratio, the decrease in its current ratio and quick ratio, and the decrease in the proportion of current assets. This requires the company to further optimize its asset-liability structure and improve its liquidity level to ensure the robustness and sustainability of its debt repayment capacity.
Overall, in terms of revenue and profit, the company experienced growth and decline in 2020 and 2021, respectively. The sharp increase in net profit in 2021 was mainly attributed to the peak of the cryptocurrency market. However, the market challenges faced in 2022 and 2023 led to a sharp decline in revenue and profit, especially a huge net loss in 2023, showing the negative impact of industry fluctuations on the company's profitability. In terms of sales, the decline in total sales computing power was mainly affected by fluctuations in the cryptocurrency market. The continued market decline at the end of 2022 led to a sharp decline in total sales computing power, and there was a serious decline in the fourth quarter of 2022. The company continued to increase its investment in research and development, especially the sharp 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. Summary
In summary, Canaan has experienced market ups and downs and challenges in the past five years, especially in 2022 and 2023, when it faced a sharp decline in revenue and profits. Canaan has responded to challenges through technological innovation, R&D investment and market expansion in the face of industry fluctuations. Overall, Canaan's improved financial performance in 2023 is mainly due to the following initiatives: 1. Canaan has strong capabilities in ASIC chip design and has successfully designed and produced high-performance Bitcoin mining machines. In addition, the company uses its technical expertise in ASIC design to actively expand into the AI field and provide overall AI solutions including AI chips, algorithm development and optimization, hardware modules, terminal products and software services; 2. Through strategic cooperation with specific cryptocurrency mining farms, Canaan has entered the Bitcoin mining business. As the second growth engine, this business aims to leverage the Bitcoin ecosystem and generate synergies with Bitcoin mining machine sales. Canaan Technology continues to increase computing power and improve computing power to enhance mining operations, thereby reducing inventory risks and improving financial and operating performance; 3. Canaan Technology has improved its assembly capabilities for Bitcoin mining machines and AI chips through a combination of internal and external production resources, thereby achieving high quality, high yield and stable production. Canaan Technology has established long-term partnerships with leading global suppliers to ensure efficient and stable production; 4. From January 1, 2023, the company's reporting currency will be changed from RMB to US dollars to better reflect its global business development and future strategy. This move makes Canaan Technology's financial reporting more consistent and helps advance its strategy in the global market; 5. Canaan Technology has made breakthroughs in multiple technical fields such as low voltage and high power efficiency operation, high computing density, etc., which are critical in ASICs for blockchain and AI solutions. In addition, Canaan Technology owns most of the intellectual property used and has accumulated valuable technology and multiple generations of proprietary silicon data through long-term ASIC design experience; 6. Canaan Technology plans to continue to expand its customer base, launch more products and solutions, and increase revenue from a wider range of customers, although it currently relies on a few customers to contribute a significant part of its revenue.
Through these initiatives, Canaan has achieved remarkable results in improving technological capabilities, expanding markets, optimizing operations and management costs, thereby achieving more stable and strong financial performance in 2023. We believe that in the future, Canaan will continue to pay attention to market changes, maintain competitiveness, and adopt active development strategies to achieve long-term growth.
