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.
Indicator  Value  Change for the analysed period  
in thousand EUR  % from the balance total  thousand EUR (col.5col.2) 
± % ((col.5col.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. Noncurrent 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 
4,770,370  4,985,680  76,222  55,162  1.3  <0.1  4,715,208  98.8  
128,380,239  147,904,069  175,094,863  89,543,524  35.6  13.6  38,836,715  30.3  
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. Noncurrent 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 noncurrent 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 (31.12.0631.12.09)). 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 noncurrent 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).
Indicator  Value  Change  
in thousand EUR  % from the balance total  thousand EUR (col.3col.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.
Indicator  Value  Change (col.5col.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 
Debttoequity ratio (financial leverage)  0.52  0.95  1.1  1.01  +0.49  A debttoequity 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 0.431). 
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. longterm and shortterm liabilities) by total assets. It shows how much the company relies on debt to finance assets (similar to debttoequity ratio). Normal value: no more than 0.6 (optimum 0.30.5). 
Longterm debt to Equity  0.1  0.31  0.29  0.08  0.02  The ratio is calculated by dividing longterm (noncurrent) liabilities by equity. 
Noncurrent assets to Net worth  0.79  1.22  1.4  1.53  +0.74  The ratio is calculated by dividing longterm (noncurrent) liabilities by net worth (equity) and measures the extent of a company's investment in lowliquid noncurrent assets. This ratio is important for comparison analysis because it's less dependent on industry (structure of company's assets) than debt ratio and debttoequity ratio. Normal value: 1.25 or less. 
Capitalization ratio  0.09  0.24  0.22  0.07  0.02  Calculated by dividing noncurrent assets by the sum of equity and noncurrent 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 noncurrent 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 noncurrent liabilities by total (i.e. current and noncurrent) liabilities. 
Debttoequity 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 debttoequity 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, noncurrent 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 noncurrent 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 noncurrent 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 shortterm liabilities.
The dynamics of the main ratios of financial stability of Goldstar is shown in the following diagram.
Indicator  Value  Change for the analysed period  
31.12.2006  31.12.2007  31.12.2008  31.12.2009  (col.5col.2)  % ((col.5col.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 (12), 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.
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 shortterm debt obligations. Acceptable value: 2 or more. 
2. Quick ratio (acidtest 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 shortterm 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.
The main financial results of Goldstar's activities are given in the table below for the reviewed period (31.12.0631.12.09).
Indicator  Value, thousand EUR  Change  Average annual value, thousand EUR 

2007  2008  2009  thousand EUR (col.4  col.2) 
± % (42) : 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 (12)  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 (567)  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.
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 noncurrent 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.
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 welldefined 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 
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).
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:


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).
The Altman Zscore was calculated to predict the probability of the company's bankruptcy (a 4factor model for a private nonmanufacturer is taken for Goldstar):
Zscore = 6.56T_{1} + 3.26T_{2} + 6.72T_{3} + 1.05T_{4} , где
Ratio  Calculation  Ratio value on 31.12.2009  Weighting factor  Product (col. 3 х col. 4) 
1  2  3  4  5 
T_{1}  Working Capital / Total Assets  0.23  6.56  1.48 
T_{2}  Retained Earnings / Total Assets  0.48  3.26  1.56 
T_{3}  Earnings Before Interest and Taxes / Total Assets  0.14  6.72  0.94 
T_{4}  Equity / Total Liabilities  0.99  1.05  1.04 
Altman Zscore:  2.07 
Zones of Discrimination:
Goldstar's Zscore 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 Zscore predicts the company's bankruptcy probability is only relative and the final conclusion should be made based on results of deeper analysis.
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 
Noncurrent 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 