Financial Analysis Of Merge Between Changsha Pump Factory And Xiangtan Electric

Before merging with Changsha Pump Factory, the return on equity of the Xiangtan Electric Company was dropping continuously, due to the fact that the product price rise cannot match the material price rise. The internal management of Changsha Pump Factory is weak;the company's product competition status obviously glides down, net assets amounts to negative 82 million Yuan.The profitability and operational vitality of Xiangtan Electric Company after merge was not enhanced remarkably. Evidence shows: Return on equity did not reverse the trend of continuous drops in recent years;the return on total assets ceased declining trend, basically maintained its level in year 2003;the turnover has not been faster than before. All these phenomena show that the profitability has not been improving.Are there any synergetic gain from the merge of Xiangtan Electric and Changsha Pump Factory? Are there any financial risks after merge? This is the focus of this paper. The research methods include comparing the two company's conditions before merge, comparing Xiangtan Electric's financial conditions with that of similar industry in the aftermath of merge, studying whether both parties can effectively use the properties that were idle before merge.The research result indicated that there is no significant synergetic effect of merge between Xiangtan Electric Company and Changsha Pump Factory. Compared to the same industry, return on equity, earning per share and return on assets of the merged company had no significant increase. Meanwhile, merge also brought financial risk;the current ratio and quick ratio decreased after merge. This article delivered some suggestions to solve the existing problems.