Sample Essay

Despite an increase in the percentage used to calculate obsolete inventory this is probably understated due to the decreasing[1] and increasing fickle demand in the product. Prepaid expenses and others have risen mainly due to an increase in deferred tax assets(due to losses in certain business segments). The notes reveal that it is not clear whether these tax assets will actually even prove beneficial in the long run.

The point being that in reality Mattel might be facing worsening liquidity. This is a matter of concern in an economy which is experiencing because Mattel is already vulnerable to the liquidity concerns of its major customers (large retailers) and Mattel should ensure that it has reserves to pay suppliers if its customers are going through a bad patch.

The inventory turnover is slightly higher. This is probably due to an overvalued inventory. I recommend that the percentage used to make allowances for obsolete inventory should be increased.

The increase in the debt-equity ratio is attributable to an increase in the long-term debt of the company.

The Net Profitability has decreased from 10% to 6%. Although increasing cost of sales is a major reason behind this trend which in turn is mainly because of a global trend of increasing prices, I recommend that each expense needs to be closely looked at for example advertising expenses and needs to be examined to prove that the increased expense is justified.

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