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Analysis of the Financial Condition of Goldstar
for the Period from 01.01.2007 to 31.12.2009

1. Analysis of the Financial Position of Goldstar
    1.1. Structure of the Assets and Liabilities
    1.2. Net Assets (Net Worth)
    1.3. Analysis of the Financial Sustainability
        1.3.1. Key indicators of the company's financial sustainability
        1.3.2. Working capital analysis
    1.4. Liquidity Analysis
2. Financial Performance
    2.1. Overview of the Financial Results
    2.2. Profitability Ratios
    2.3. Analysis of the Business Activity (Turnover Ratios)
3. Conclusion
    3.1. Key Indicators Summary
    3.2. Rating of the Financial Position and Financial Performance of Goldstar
4. Appendix
    4.1. Bankruptcy Test (Altman Z-score)
    4.2. Calculation of the Final Rating of the Financial Condition

1. Analysis of the Financial Position of Goldstar

The report tells about the analysis of Goldstar's financial condition based on the data of financial statements prepared according to International Financial Reporting Standards (IFRS) for the period from 01.01.2007 to 31.12.2009.

1.1. Structure of the Assets and Liabilities

Indicator Value Change for the analysed period
in thousand EUR % from the balance total thousand EUR
(col.5-col.2)
± %
((col.5-col.2) : col.2)
31.12.2006 31.12.2007 31.12.2008 31.12.2009 at the beginning of the analysed period
(31.12.2006)
at the end of the analysed period
(31.12.2009)
1 2 3 4 5 6 7 8 9
Assets
1. Non-current assets 187,625,543 322,273,637 416,299,008 503,097,289 52 76.4 +315,471,746 +168.1
2. Current assets, total 173,184,851 191,660,913 207,513,814 155,460,157 48 23.6 -17,724,694 -10.2
Inventories 4,770,370 4,985,680 76,222 55,162 1.3 <0.1 -4,715,208 -98.8
Trade and other current receivables 128,380,239 147,904,069 175,094,863 89,543,524 35.6 13.6 -38,836,715 -30.3
Cash and cash equivalents 7,132,445 2,811,891 3,354,882 17,435,540 2 2.6 +10,303,095 +144.5
Equity and Liabilities
1. Equity 236,892,662 263,953,835 296,713,355 328,181,421 65.7 49.8 +91,288,759 +38.5
2. Non-current liabilities 24,814,976 82,295,647 85,046,637 26,441,244 6.9 4 +1,626,268 +6.6
3. Current liabilities 99,102,756 167,685,068 242,052,830 303,934,781 27.5 46.2 +204,832,025 +3.1 times
Assets; Equity and Liabilities 360,810,394 513,934,550 623,812,822 658,557,446 100 100 +297,747,052 +82.5

According to the data given in the table, the share of Goldstar's current assets makes about a quarter (23.6%) on the 31 December, 2009, while non-current assets take three quarters of all assets. The assets grew rapidly by EUR 297,747,052 thousand, or by 83% and made EUR 658,557,446 thousand during the entire analysed period. The company's assets grew together with equity (+38.5% during the reviewed period (31.12.06-31.12.09)). Growth of the equity value is a factor which positively describes the dynamics of the financial state of Goldstar.

The total growth of Goldstar's assets value is primarily connected with the value growth of the item "Other non-current financial assets" by EUR 331,695,629 thousand, that made 92.8% from all positively changed assets.

The most significant growth of sources of finance ("Equity and Liabilities") is seen on the following rates (the percentage from total equity and liabilities change is shown in brackets):

Total assets of the company did not grow to a greater degree due to a negative change of items such as "Trade and other current receivables" in assets and "Trade and other current payables" in the company's sources of finance, which made EUR -38,836,715 thousand and EUR -31,194,485 thousand respectively during the 3 years.

 

 

During the analysed period (from 31 December, 2006 to 31 December, 2009), the inventories dropped from EUR 4,770,370 thousand to EUR 55,162 thousand (by EUR 4,715,208 thousand, or by 98.8%).

For the 3 years, the current receivables rapidly fell (by EUR 38,836,715 thousand).


 

1.2. Net Assets (Net Worth)

Indicator Value Change
in thousand EUR % from the balance total thousand EUR
(col.3-col.2),
%, ((col.3 -col.2) : col.2)
at the beginning of the analysed period (31.12.2006) at the end of the analysed period (31.12.2009) 31.12.2006 31.12.2007 31.12.2008 31.12.2009
1 2 3 4 5 6 7 8 9
1. Net tangible assets 236,857,787 328,071,056 65.6 51.3 47.6 49.8 +91,213,269 +38.5
2. Net assets (Net worth) 236,892,662 328,181,421 65.7 51.4 47.6 49.8 +91,288,759 +38.5
3. Issued (share) capital 21,264 21,264 <0.1 <0.1 <0.1 <0.1
4. Difference between net assets and Issued (share) capital (line 2 - line 3) 236,871,398 328,160,157 65.6 51.4 47.6 49.8 +91,288,759 +38.5

The net tangible assets amounted to EUR 328,071,056 thousand on the 31.12.2009. For the whole analysed period, the net tangible assets spiked by EUR 91,213,269 thousand. The intangible assets were equal to EUR 110,365 thousand on the last day of the analysed period (31.12.2009). This value shows the difference between rates of net tangible assets and all net worth.

On the last day of the analysed period (31.12.2009), the net worth of Goldstar was much higher (by 15,433.7 times) than the share capital. Such a ratio positively describes a financial position of the company. The net worth (net assets) rate is used as one of the tools to estimate the company's value (used together with other methods, such as discounted cash flow method, estimation based on shareholder's value etc.). But it is a key rate for the estimation of the company's financial condition.


 


 

1.3. Analysis of the Financial Sustainability

1.3.1. Key indicators of the company's financial sustainability

Indicator Value Change
(col.5-col.2)
The description of an indicator and its recommended value
31.12.2006 31.12.2007 31.12.2008 31.12.2009
1 2 3 4 5 6 7
Debt-to-equity ratio (financial leverage) 0.52 0.95 1.1 1.01 +0.49 A debt-to-equity ratio is calculated by taking the total liabilities and dividing it by shareholders' equity. It is the key financial ratio and used as a standard for judging a company's financial standing.
Acceptable value: 1.5 or less (optimum 0.43-1).
Debt ratio (debt to assets ratio) 0.34 0.49 0.52 0.5 +0.16 A debt ratio is calculated by dividing total liabilities (i.e. long-term and short-term liabilities) by total assets. It shows how much the company relies on debt to finance assets (similar to debt-to-equity ratio).
Normal value: no more than 0.6 (optimum 0.3-0.5).
Long-term debt to Equity 0.1 0.31 0.29 0.08 -0.02 The ratio is calculated by dividing long-term (non-current) liabilities by equity.
 
Non-current assets to Net worth 0.79 1.22 1.4 1.53 +0.74 The ratio is calculated by dividing long-term (non-current) liabilities by net worth (equity) and measures the extent of a company's investment in low-liquid non-current assets. This ratio is important for comparison analysis because it's less dependent on industry (structure of company's assets) than debt ratio and debt-to-equity ratio.
Normal value: 1.25 or less.
Capitalization ratio 0.09 0.24 0.22 0.07 -0.02 Calculated by dividing non-current assets by the sum of equity and non-current liabilities.
 
Fixed assets to Net worth 0.03 0.02 0.02 0.01 -0.02 The ratio indicates the extent to which the owners' cash is frozen in the form of fixed assets, such as property, plant, and equipment, investment property and non-current biological assets.
Normal value: no more than 0.75.
Current liability ratio 0.8 0.67 0.74 0.92 +0.12 Current liability ratio is calculated by dividing non-current liabilities by total (i.e. current and non-current) liabilities.
 

Debt-to-equity ratio and debt ratio are the main coefficients describing financial stability. The rates are similar in their meaning and indicate a relationship between two main sources of capital: equity and borrowed capital. The difference between the ratios is that the first one is calculated as a relationship of the borrowed capital (liabilities) to the equity, while the second ratio is calculated as a relationship of the liabilities to the overall capital (i.e. the sum of equity and liabilities).

The debt-to-equity made 1.01 at the end of the analysed period. On the 31 December, 2009, the debt ratio made 0.5. The debt ratio notably grew (by 0.16) during the last 3 years.

The debt ratio describes the financial condition of Goldstar as a good one on the last day of the analysed period, the percentage of liabilities makes 50.2%, while a maximum acceptable percentage is deemed to be 60%. The values of the debt ratio corresponded to acceptable ones during the whole evaluated period.

In the diagram below, one can see a structure of the company's capital:

 

 

According to common rules, non-current investments should be made, in the first place, with the help of the most stable source of financing, i.e. with the help of owned capital (equity). The non-current assets to Net worth ratio shows if this rule is followed. The ratio was equal to 1.53 at the end of the reviewed period. Growth of the ratio made 0.74 during the 3 years, additionally, the similar tendency is confirmed with a linear trend during the period. On the 31.12.2009, the ratio has an unacceptable value.

The current liability ratio makes 0.92 on the 31.12.2009. It means that the overall share of current and non-current liabilities in a company's liabilities makes 92% and 8% respectively. Unbalance of financial sources to the side of liabilities with short maturity can negatively influence financial stability and the company's solvency. That is why it is important to be careful with an increase of short-term liabilities.

The dynamics of the main ratios of financial stability of Goldstar is shown in the following diagram.

 

 

1.3.2. Working capital analysis

Indicator Value Change for the analysed period
31.12.2006 31.12.2007 31.12.2008 31.12.2009 (col.5-col.2) %
((col.5-col.2) : col.2)
1 2 3 4 5 6 7
1. Working capital (net working capital), thousand EUR +74,082,095 +23,975,845 -34,539,016 -148,474,624 -222,556,719
2. Inventories, thousand EUR +4,770,370 +4,985,680 +76,222 +55,162 -4,715,208 -98.8
3. Working capital sufficiency (1-2), thousand EUR +69,311,725 +18,990,165 -34,615,238 -148,529,786 -217,841,511
4. Inventory to working capital ratio (2:1) Acceptable value: 1 or less. 0.06 0.21 -<0.01 -<0.01 -0.06 x

Goldstar has no working capital on the last day of the analysed period (31.12.2009) (the rate has a negative value of EUR -148,474,624 thousand). It was caused by exceeding the current liabilities over the sum of the current assets of the company. Comparison of the own working capital with inventories makes no sense. It is deemed to be normal when the inventory to working capital ratio makes not less than 1.


 


 

1.4. Liquidity Analysis

One of the most widespread indicators of a company's solvency are liquidity related ratios. The current ratio shows the capability of a company to meet current liabilities with all available current assets. Quick ratio describes solvency in the near future. Cash ratio shows if there is enough means for uninterrupted execution of current transactions. All three ratios for Goldstar are calculated in the following table.

Liquidity indicator Value Change
(col.5 - col.2)
The description of an indicator and its recommended value
31.12.2006 31.12.2007 31.12.2008 31.12.2009
1 2 3 4 5 6 7
1. Current ratio (working capital ratio) 1.75 1.14 0.86 0.51 -1.24 Current ratio is calculated by dividing current assets by current liabilities. It indicates a company's ability to meet short-term debt obligations.
Acceptable value: 2 or more.
2. Quick ratio (acid-test ratio) 1.7 1.11 0.86 0.51 -1.19 Quick ratio is calculated by dividing liquid assets (cash and cash equivalents, trade and other current receivables, other current financial assets) by current liabilities. It is a measure of a company's ability to meet its short-term obligations using its most liquid assets (near cash or quick assets).
Normal value: 1 or more.
3. Cash ratio 0.07 0.02 0.01 0.06 -0.01 Cash ratio is calculated by dividing absolute liquid assets (cash and cash equivalents) by current liabilities.
Acceptable value: no less than 0.2.

On the 31 December, 2009, the current ratio made 0.51. For the whole analysed period, the current ratio went down by 1.24. At the end of the reviewed period, the value of the ratio equal to can be described as obviously unsatisfactory. The values of the current ratio were not normal during the whole of the analysed period.

During the reviewed period (from 31.12.2006 to 31.12.2009), the quick ratio sharply decreased from 1.7 to 0.51 (-1.19). During the whole of the considered period the ratio was continuously falling. On the 31.12.2009, the value of the quick ratio can be characterised as an unsatisfactory one. I.e. Goldstar has either too many current liabilities or not enough liquid assets, with help of which the mentioned liabilities could be met.

Like the two previous rates, the cash ratio has an unsatisfactory value (0.06) at the end of the analysed period that says about the deficit of the most liquid assets in the company (cash and cash equivalents) to meet all current liabilities.

 

 

All three liquidity related ratios negatively describe the structure of the Statement of financial position of Goldstar from the point of view of solvency.

2. Financial Performance

2.1. Overview of the Financial Results

The main financial results of Goldstar's activities are given in the table below for the reviewed period (31.12.06-31.12.09).

Indicator Value, thousand EUR Change Average annual
value, thousand EUR
2007 2008 2009 thousand EUR
(col.4 - col.2)
± %
(4-2) : 2
1 2 3 4 5 6 7
1. Revenue 693,032,679 609,821,837 623,979,575 -69,053,104 -10 642,278,030
2. Cost of sales 566,143,059 489,837,720 512,028,603 -54,114,456 -9.6 522,669,794
3. Gross profit  (1-2) 126,889,620 119,984,117 111,950,972 -14,938,648 -11.8 119,608,236
4. Other income and expenses, except Finance costs -52,797,606 -26,430,917 -19,887,930 +32,909,676 -33,038,818
5. EBIT (3+4) 74,092,014 93,553,200 92,063,042 +17,971,028 +24.3 86,569,419
6. Finance costs 2,378,700 6,308,164 4,520,565 +2,141,865 +90 4,402,476
7. Income tax expense (from continuing operations) 16,583,554 22,117,859 20,350,754 +3,767,200 +22.7 19,684,056
8. Profit (loss) from continuing operations (5-6-7) 55,129,760 65,127,177 67,191,723 +12,061,963 +21.9 62,482,887
9. Profit (loss) from discontinued operations
 
10. Profit (loss) (8+9) 55,129,760 65,127,177 67,191,723 +12,061,963 +21.9 62,482,887
11. Other comprehensive income
12. Comprehensive income (10+11)
 
55,129,760 65,127,177 67,191,723 +12,061,963 +21.9 62,482,887

The revenue amounted to EUR 623,979,575 thousand for the last year. For the entire analysed period, the revenue appreciably reduced (by EUR 69,053,104 thousand). The diagram below demonstrates a change of revenue and a comprehensive income of Goldstar. For the year 2009, the gross profit made EUR 111,950,972 thousand. For the last year in comparison with the same period as last year, the gross profit appreciably fell (EUR -14,938,648 thousand).

During the period from 01.01.2009 to 31.12.2009, the company posted a gross profit and earnings before interest and taxes (EBIT), which made EUR 92,063,042 thousand in total. The comprehensive income of Goldstar made EUR 67,191,723 thousand in total for the year 2009.

 

 

2.2. Profitability Ratios

Profitability ratios Value in % Change
(col.4 - col.2)
2007 2008 2009
1 2 3 4 5
1. Gross margin. 18.3 19.7 17.9 -0.4
2. Return on sales (operating margin). 10.7 15.3 14.8 +4.1
3. Profit margin. 8 10.7 10.8 +2.8
Reference:
Interest coverage ratio (ICR). Normal value: no less than 1.5.
31.1 14.8 20.4 -10.8

During the last year, the company gained gross profit and profit from operational and financial activities, which became a reason for positive values of all three profitability ratios given in the table for this period. During the year 2009, the gross margin was equal to 17.9%, that is moderately lower (by 0.4%) than the gross margin for the year 2007.

The profitability calculated by earnings before interest and taxes (Return on sales) is more important from the point of view of comparative analyses. The return on sales made 0.15 or 14.8% per annum during the year 2009, while the profit margin made 10.8% per annum.

 

 

To assess the liabilities that the company should repay for the use of borrowed capital, an interest coverage ratio was calculated. The acceptable value is deemed to be not less than 1.5. In this case, the interest coverage ratio made 20.4 for the year 2009, which is evidence of Goldstar's capability to pay interest on borrowed assets. It should also be mentioned that not all interest payments can be described in the Statement of comprehensive income and used to calculate the indicated ratio. Interest related to the investments in qualified assets is not included in the financial results (they are taken into account in asset value).

Profitability ratios Value, % Change
(col.4 - col.2)
The description of an indicator and its reference value
2007 2008 2009
1 2 3 4 5 6
Return on equity (ROE) 22 23.2 21.5 -0.5 ROE is calculated by taking a year's worth of earnings (net profit) and dividing them by the average shareholder equity for that period, and is expressed as a percentage. It is one of the most important financial ratios and profitability metrics. Acceptable value: 12% or more.
Return on assets (ROA) 12.6 11.4 10.5 -2.1 ROA is calculated by dividing net income by total assets, and displayed as a percentage. Acceptable value: no less than 6%.
Return on capital employed (ROCE) 24.4 25.6 25 +0.6 ROCE is calculated by dividing EBIT by capital employed (equity plus non-current liabilities). It indicates the efficiency and profitability of a company's capital investments.

The return on assets fell from 12.6% to 10.5% (by 2.1%) during the 3 years. During the whole of the reviewed period, the return on assets corresponded to the set norm.

The most important indicator of the business profitability is a return on equity (ROE), which reflects the profitability of investments by the owners. The return on equity of Goldstar made during the last year 21.5% per annum. It is a high rate, but it is influenced not only with factors inside the company, but also the economic environment where the company is located (inflation rate, interest rates, etc).

The following diagram demonstrates the dynamics of the main rates of return on total assets and equity of Goldstar during the last 3 years.

 

 

2.3. Analysis of the Business Activity (Turnover Ratios)

To assess the business activity of Goldstar, the table below provides the main rates of turnover: receivables, inventory, current and total assets turnovers; accounts payable and capital turnovers of the company. Turnover rates have strong field specifics and depend on activity. That is why an absolute value of the rate does not allow making its' qualitative assessment. When assets turnover ratios are analysed, an increase of ratios (i.e. velocity of circulation) and a reduction of circulation days are deemed to be positive dynamics. There is no well-defined dependence for accounts payable and capital turnover. In any case, an accurate conclusion can only be made only after the reasons that caused these changes are considered.

Turnover ratio Value, days Ratio
2007 
 Ratio
2009
Change, days
(col.4 - col.2)
2007 2008 2009
1 2 3 4 5 6 7
Receivables turnover (days sales outstanding)
(average trade and other current receivables divided by average daily revenue*)
73 97 77 5 4.7 +4
Accounts payable turnover (days payable outstanding)
(average current payables divided by average daily purchases)
43 61 49 8.4 7.5 +6
Inventory turnover (days inventory outstanding)
(average inventory divided by average daily cost of sales)
3 2 <1 116.1 7,794.4 -3
Asset turnover
(average total assets divided by average daily revenue)
230 341 375 1.6 1 +145
Current asset turnover
(average current assets divided by average daily revenue)
96 120 106 3.8 3.4 +10
Capital turnover
(average equity divided by average daily revenue)
132 168 183 2.8 2 +51
Reference:
Cash conversion cycle
(days sales outstanding + days inventory outstanding - days payable outstanding)
33 38 29 x x -4
* Calculation in days. Ratio value is equal to 365 divided by days outstanding.

During the last year, the average collection period (days sales outstanding) was 77 days and the average days payable outstanding was 49 days as shown in the table. Rate of asset turnover means that Goldstar gains revenue equal to the sum of all the available assets for 316 days (on average for the whole reviewed period).

3. Conclusion

3.1. Key Indicators Summary

The main rates of financial state and Goldstar's activity results are classified by qualitative assessment according to the results of the analysis during the entire reviewed period and are given below.

Financial rates with outstanding values:

Financial rates with positive values:

The following rate is the financial rate with the value which borders on the edge of standard – the increase of equity during the 3 years was lower than the growth rates of total assets.

Financial rates with unacceptable values:

The following rates describe the financial state from a critical point of view:

3.2. Rating of the Financial Position and Financial Performance of Goldstar

Financial performance for the analysed period (01.01.07-31.12.09) Financial position on 31.12.2009
ААА АА А ВВВ ВВ В ССС СС С D
Excellent (AAA)                  
Very good (AA) V
Good (A)                  
Positive (BBB)                  
Normal (BB)                  
Satisfactory (B)                  
Unsatisfactory (CCC)                  
Adverse (CC)                  
Bad (C)                  
Critical (D)                  
Final rating of the financial condition of Goldstar (period analysed: from 01.01.2007 to 31.12.2009 analysis step - year):

BB
(normal)
 

According to the results of the conducted analysis, the financial position of Goldstar was assessed at a score scale in -0.34, which corresponds to the B rating (satisfactory position). The financial results of the company's activities were scored at +1.36 for the entire analysed period, which corresponds to the AA rating (very good results). One should tell that final scores are calculated considering both rates at the end of the analysed period and rates dynamics, including their expected values for the next year. The final score of the financial condition, which includes analysis of the company's financial position and financial performance, makes +0.34, which equals the rating scale to a normal (BB) condition.

"BB" describes the financial condition of a company when the majority of rates are normal. Companies with this rating should be considered as business partners who will need to be treated carefully when managing risks. These companies can lay a claim to obtain credit but a decision mainly depends on the analysis of additional factors (neutral creditworthiness).

4. Appendix

4.1. Bankruptcy Test (Altman Z-score)

The Altman Z-score was calculated to predict the probability of the company's bankruptcy (a 4-factor model for a private non-manufacturer is taken for Goldstar):

Z-score = 6.56T1 + 3.26T2 + 6.72T3 + 1.05T4 , где

 Ratio  Calculation  Ratio value on 31.12.2009  Weighting factor  Product
(col. 3 х col. 4)
1 2 3 4 5
T1 Working Capital / Total Assets -0.23 6.56 -1.48
T2 Retained Earnings / Total Assets 0.48 3.26 1.56
T3 Earnings Before Interest and Taxes / Total Assets 0.14 6.72 0.94
T4 Equity / Total Liabilities 0.99 1.05 1.04
Altman Z-score: 2.07

Zones of Discrimination:

Goldstar's Z-score made 2.07 on the 31.12.2009. Such a value says about probability that Goldstar will go into bankruptcy (the value is in the border zone). Despite the good results obtained, it should be mentioned that the Altman Z-score predicts the company's bankruptcy probability is only relative and the final conclusion should be made based on results of deeper analysis.

4.2. Calculation of the Final Rating of the Financial Condition

Indicator Weighting factor Score Average score
(col.3 х 0.25 + col.4 х 0.6 + col.5 х 0.15)
Weighted average score
(col.2 х col.6)
past present future
1 2 3 4 5 6 7
I. Rating of the company's financial position
Debt ratio 0.3 +2 +1 +1 +1.25 +0.375
Non-current assets to net worth 0.15 +1 -1 -1 -0.5 -0.075
Current ratio 0.2 -1 -2 -2 -1.75 -0.35
Quick ratio 0.2 +2 -1 -2 -0.4 -0.08
Cash ratio 0.15 -2 -1 -2 -1.4 -0.21
Total 1 Final score (in total col.7 : col. 2): -0.34
II. Rating of the company's financial performance
Return on equity (ROE) 0.5 +2 +2 +2 +2 +1
Return on assets (ROA) 0.3 +2 +2 +1 +1.85 +0.555
Sales growth 0.2 -1 -1 -1 -1 -0.2
Total 1 Final score (in total col.7 : col. 2): +1.355


 

The final rating score of Goldstar's financial condition: (-0.34 x 0,6) + (+1.355 x 0,4) = +0.34   (BB - normal)

Reference: Financial condition scale

Total score Sign The qualitative assessment of a financial condition
from
to
(inclusive)
2 1.6 AAA Excellent
1.6 1.2 AA Very good
1.2 0.8 A Good
0.8 0.4 BBB Positive
0.4 0 BB Normal
0 -0.4 B Satisfactory
-0.4 -0.8 CCC Unsatisfactory
-0.8 -1.2 CC Adverse
-1.2 -1.6 C Bad
-1.6 -2 D Critical



 

Данный отчет сформирован автоматически в результате работы программы "Ваш финансовый аналитик" (см. подробней) - знаний финансового анализа от пользователя программы не требуется! Наш лозунг: "Заставь компьютер думать!"

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