Analysis of the Impact of Luoxin Pharmaceutical's Equity Transfer on Its Financial Structure and Investors

After this equity transfer by Luoxin Pharmaceutical, Shandong Luoxin’s shareholding ratio in Luo’an Company will decrease from 70% to 50%. According to accounting standards for enterprises, Luo’an Company will no longer be included in the scope of consolidated financial statements and will instead be accounted for using the equity method [0]. In terms of financial structure, ceasing consolidation will directly reduce the company’s consolidated total assets and total liabilities; at the same time, the cash inflow from the equity transfer of 5.125 million USD (converted to approximately 35.875 million RMB at an exchange rate of 1:7) will increase monetary funds, raise the current ratio (currently 0.81) and quick ratio (currently 0.64), and improve short-term solvency [0]. In terms of profitability, the revenue and costs in the consolidated income statement will decrease due to ceasing consolidation, and Luo’an Company’s profits will be recognized as investment income through the equity method based on the 50% shareholding ratio [0]. The investment income from the equity transfer depends on the difference between the book value of the 20% equity of Luo’an Company and the transfer price. Currently, due to the lack of Luo’an Company’s financial data, this income cannot be accurately calculated [0].

1. Potential for financial indicator optimization: If Luo’an Company is in a loss state, ceasing consolidation may improve the loss situation in the consolidated income statement; if Luo’an Company is profitable, although the consolidated profit will decrease, the investment income can still reflect the performance contribution of its 50% shareholding.
2. Signal of strategic adjustment: This transfer may be a measure for the company to adjust its business structure and focus on core businesses, but since the strategic intention has not been clearly disclosed, follow-up announcements need to be watched.
3. Information asymmetry risk: The lack of specific financial data of Luo’an Company makes the actual impact of the equity transfer on the company uncertain.

• Exchange rate fluctuation risk: The equity transfer is denominated in USD; fluctuations in the RMB exchange rate may affect the actual cash inflow.
• Unclear strategic intentions: If the company does not clearly disclose the reasons for the transfer and subsequent plans, it may arouse investors’ doubts about the company’s development direction.
• Uncertainty of financial impact: Due to the lack of Luo’an Company’s financial data, the actual impact on the consolidated financial statements cannot be accurately evaluated.

• Improvement of short-term solvency: The cash inflow from the equity transfer helps alleviate the company’s current weak short-term debt repayment pressure.
• Potential for business focus: If the company focuses on more competitive core businesses after the transfer, it may improve asset operation efficiency.

This equity transfer by Luoxin Pharmaceutical will bring changes to the financial structure and profit accounting method; the cash inflow can improve short-term solvency, but the specific impact needs to be combined with Luo’an Company’s actual operating status. Investors should pay attention to the company’s follow-up announcements to clarify strategic intentions, and at the same time need to comprehensively consider exchange rate risks and information asymmetry factors.