FINANCIAL ANALYSIS

WHIRLPOOL CORPORATION

1. Introduction

2. Financial Highlights เลือกตัวสำคัญๆมำเพื่ออธิบำย

3. Financial Ratios Analysis

- 5-Year Trend Analysis
- Industry Comparison

4. Common-Size Analysis ทำเพื่อดูว่ำบริ ษัทเมื่อเทียบกับ Industry แล้ ว เป็ นอย่ำงไร

- Industry Comparison

5. Performance Graph เปรี ยบเทียบกำรลงทุนในหุ้นบริ ษัท กับ ตลำด และ industry ว่ำผลลัพธ์ 5 ปี ที่ผ่ำนมำจะเป็ นยังไง

6. Stock Valuation
ต้ องกำรใช้ Gordon Growth เพื่อหำว่ำรำคำหุ้น Over/undervalued

7. Technical Analysis
ต้ องกำรจะใส่กรำฟและอธิบำยถึงอินดิเคเตอร์ บำงตัว เพื่อมำ support กับพำท stock valuation ว่ำไปใน
ทิศทำงเดียวกันหรื อเปล่ำครับ

8. Financial Risks ควำมเสี่ยงต่ำงๆ ที่จะกระทบต่อกำรเงินบริ ษัท

INTRODUCTION

Investing in a well-known companies with a high quality and strong global brand position, high potential
growth, and a good brand portfolio is a dream for many people who are interested in stock investment since it
can generate return over period of time.

The first thought come up on their mind that where can we find these kinds of stock. The answer is, the first
place for those who are interested in a good quality stocks is the S&P 500 Index. The S&P 500 Index is the most
widely known U.S. stock market index. There are 500 companies in this market sorted by Market
Capitalization. S&P 500 Index stock market is a wonderful place for investor to find a good dividend stocks.

Talking about qualifications that we mentioned before, Whirlpool Corporation (WHR) is in the criteria.
However, in latest year, which is 2018, the stock price-NYSE has dropped approximately 37% from 2017.

However, this might be a great buying opportunity for investors. After seeing calculation result, stock appears
to be significantly undervalued right now.

Still Working on it
FINANCIAL HIGHLIGHTS

Net Sales

Whirlpool Corporation has a Net Sales at 21.04 Billion USD in 2018 which is 1% decreased from 2017 at 21.25
Billion USD. The standard deviation is 530 Million USD or around 2.67% using 2014 as a base year. Also, Five-
year CAGR for Net Sales is still positive at 1.15%. However, according to the company’s commitment which aim
to have 3%-5% annual net sales growth, the real figure shown still below their expectation.

Gross Profit

The Gross Profit for Whirlpool Corporation in 2018 was 3.54 Billion USD or 16.81% of Net sales, a little
decreased from 3.60 Billion USD in 2017. The standard deviation is approximately 123 Million USD or around
3.64% using 2014 as a base year. Five-year CAGR is still positive figure at 0.82%.

Impairment of Goodwill and other intangibles

The company recorded am impairment cost for $747 Million USD which is Goodwill for 579 Million USD and
other intangibles for 168 Million USD.

Operating Profit

The operating profit for Whirlpool Corporation in 2018 was 0.28 Billion USD or it is just only 1.33% of net sales,
there was a dramatically decreased from 2017 at 1.14 Billion USD or it is up to 75.4% lower. It was mainly
because of the impairment of goodwill and other intangibles cost incurred making the operating profit become
much lower than the past.

Interest Expense

Interest Expense for Whirlpool Corporation in 2018 was 192 Million USD increased from 162 Million USD in
2017 or 18% higher from 2017. The increasing of interest expense in 2018 was mainly because of higher of
average debt and note payables and also a higher average interest rate.

Income Taxes

The income taxes for Whirlpool Corporation in 2018 was 138 Million USD, a huge decreased from 550 Million
USD in 2017. This is due to lower of net earnings in 2018 and also, the reduction of U.S. tax rate from 35% to
21%.

Net Earnings (Loss)

The Whirlpool Corporation has net Loss of (159) Million USD Dollar in 2018 which is a huge decrease from net
gain for 337 Million USD Dollar in 2017. This net loss primarily come from the impairment cost that we
mentioned before.

Stock Price

At the end of 2018, Whirlpool’s stock price-NYSE closed at 106.87 USD per share or approximately 37%
decreased from 2017 at 168.6 USD per share. The huge decreasing in stock price would be from U.S. housing
market downturn and about trade wars. These made consumer confidence become lower together with the
reported of lower in net earnings in each quarter.
FINANCIAL RATIOS ANALYSIS

Financial ratios are a numeric value which created from a relationship between financial information in
Financial Statement in order to determine a company’s performances. The number will be taken from Income
Statement, Balance Sheet and Cash Flow statement to perform a quantitative analysis further. The ratio
analysis will be easy for outsiders to look, analyze and compare with other companies.

Liquidity Ratios

Liquidity is how quickly the firm can convert assets into cash. Therefore, Liquidity ratios is used to determine
the ability of the firm to pay short-term debt obligations. There are several methods to measure the liquidity
of the firm as following.

Current ratio
Current Assets / Current Liabilities
Current ratio measures the ability of the firm to pay off debt obligation by using its current assets
which are Cash, inventories, and accounts receivable. The higher ratio the better position for the firm.

CURRENT RATIO
0.96 0.96
0.93
0.89

0.82

2014 2015 2016 2017 2018

The current ratio for Whirlpool corporation is 0.82x in 2018. However, the average value for last
4-year is 0.94x so it shows that the company has lower ability to pay off short-term debt obligation
using its current assets. Looking in details, what makes the value become lower is Notes Payable.
The value of Note Payable was increase for 130% from 2017 to 2018 while the other current liabilities
items are quite constant.

The 5-year average Current ratio for U.S. Household Durables Industry is 2.28x which is obviously
higher than Whirlpool Corporation. The company has low

Notes Payable in this case for Whirlpool corporation is short-term borrowing payable to banks or
commercial paper which generally used to fund working capital requirements. This were used to fund
accelerated share repurchases through a modified Dutch auction tender offer in the second quarter
of 2018.
Quick ratio
(Current Assets – Inventories) / Current Liabilities
Quick Ratio measures the ability of the firm to pay off debt obligation as same as Current ratio. The
key variable is Current Assets. Current Assets may include some items that is considered slow-moving
such as Inventories which it could affect the analysis because it is depend on the type of the business
that how long does it take to convert inventories or raw material to finished goods. In order to
eliminate this kind of problem, Inventories will not be included in Current Assets so that it makes
Quick ratio become more preferable and more accurate. The higher ratio the better for firm.

QUICK RATIO
0.64
0.62

0.58

0.55 0.55

2014 2015 2016 2017 2018

The quick ratio for Whirlpool Corporation in 2018 is 0.55x while the average last 4-year is 0.60x. So, it
currently quite lower than the average value in the past. Moreover, we can see form the trend
starting since 2016, the value gradually decreased year by year. The key factor is Current liabilities
which started increased since 2016 so that it makes the quick ratio become lower.
Profitability Ratios

Profitability ratio measures the firm’s ability to generate profit by using its assets and capital. To make the
profitability ratio higher is always a very challenging thing for every firms. Therefore, it is a key value to see
how success of the firm in operating its business.

Gross Profit Margin

Gross Profit / Sales
Gross Profit Margin measures the gross profit generated on sales or in other word, how much can
firm generate per one dollar of Sales. Gross Profit comes from Sales minus Cost of goods sold. So, the
higher the ratio mean better for the firm because it will further affect the operating costs and other
cost that firm has to pay. On the other hand, low profit margin shows that the firm has a high cost of
goods sold and it will make Gross profit margin ratio become lower. The prices for primary materials
such as steel, resins, and base metals that used to manufacture the products are fluctuation due to
many factors.

GROSS PROFIT MARGIN

17.82%
17.66%

17.08%
16.95%
16.81%

2014 2015 2016 2017 2018

Gross Profit Margin for Whirlpool Corporation in 2018 is 16.81% while the last 4-year average is
17.4%. Even the Net Sales for the company was increased, however, the cost of goods sold was
increased higher. Therefore, it makes the Gross Profit Margin become lower since 2017.
Operating Profit Margin
Operating Profit / Sales
Operating Profit measure the profit earnings for one dollar of sales generated before interest expense
and income taxes expense are deducted. This profit value is already deducted operating cost for the
company. The firm with a high operating profit margin seems to be well and be able to survive during
crisis or during economy downturn. Therefore, the higher the ratio will show more financial strength
to the firm.

OPERATING PROFIT MARGIN

6.15% 6.60%
5.98%
5.35%

1.33%

2014 2015 2016 2017 2018

Operating Profit Margin for Whirlpool Corporation in 2018 is 1.33% while the average of last 4-year is
6%. The value dropped for almost 5% in 2018. The main cause of dropping in value is the increasing in
cost of Impairment of goodwill and indefinite-life intangibles assets which affect the company’s
operation results.

Pre-tax Margin
Earning before taxes / Sales
Pre-Tax Margin measure the profit earnings for one dollar of sales generated before income taxes
expenses are deducted. This profit value is already deducted operating cost and interest expenses. In
other word, pre-tax comes from operating profit margin minus Interest expense.

PRETAX MARGIN

4.94% 5.38%
4.43%
4.17%

-0.10%
2014 2015 2016 2017 2018

Pre-Tax Margin for Whirlpool Corporation in 2018 is -0.10% while the average of last 4-year is 4.7%. It
is obviously that the figure in 2018 is dramatically dropped making the company loss even Tax
expense still not included.
Net Profit margin
Net Profit / Sales
Net Profit Margin measure the net earning that firm can generate per one dollar of sales. This ratio
can give you a final picture of how firm can generate profit after deducted all expenses which also
included Interest expenses and Income taxes expenses. A good thing for this ratio is that it takes
everything into account. However, there are sometimes that the value may vary because of the one-
time income or expenses. If this occur, it would make Net profit margin ratio changes a lot and it will
harder to evaluate the firm’s ability.

NET PROFIT MARGIN

3.75% 4.29%

3.27%

1.65%

-0.87%
2014 2015 2016 2017 2018

Net profit Margin for Whirlpool Corporation in 2018 is -0.87% while the average of last 4-year is 3.2%.
It is also obviously to see that the company make loss in 2018 due to the big increase in operation
costs.

EBITDA
(Earnings Before Interest and taxes + Depreciation and Amortization) / Sales
EBITDA stands for earnings Before Interest, Taxes, Depreciation, and Amortization. It measures the
profitability of a firm before taking Interest expenses and tax income expense and also non-cash
items such as Depreciation and Amortization into accounts. It is mostly use as benefit of comparing
with other firms because it excludes expenses that mentioned earlier which is quite volatile.

EBITDA
0.08 0.09
0.08 0.08

0.03

2014 2015 2016 2017 2018

EBITDA for Whirlpool Corporation in 2018 is 0.03x while the average of the last 4-year is 0.08x. We
can obviously see that there is a huge drop of figure in 2018 due to increase in operation cost
mentioned above.
Sales to Asset
Sales / Average Total Assets
Sales to Asset measures the ability of the firm to generate sales per one dollar of Total Assets. The
higher the ratio means the firm is able to use its assets to generate sales well which is better.

SALES TO ASSET
1.12

1.10
1.09 1.08
1.07

2014 2015 2016 2017 2018

Sales to Assets for Whirlpool Corporation in 2018 is 1.10x while the average of last 4-year is 1.09x. The
Sale to Assets ratio is quite stable since 2014 since both Total Assets and Net Sales are stable.

Return on Assets
Net Income / Average Total Assets
Return on Asset or we may often see as ROA. It is used to measure how well of the firm can generate
return or net earnings per one dollar of total assets. So, the higher the ratio the more efficient of the
firm’s ability.

RETURN ON ASSETS

4.7%
4.0%
3.7%

1.8%

-1.0%
2014 2015 2016 2017 2018

Return on Assets for Whirlpool Corporation in 2018 is -1.0% while the average of last 4-year is 3.5%.
The formula of ROA is taken Net Income/earnings to calculate. Therefore, the ratio is minus since the
company loss in 2018.
 Return on Equity
Net Income / Stockholders’ Equity
Return on Equity or we may often see as ROE. It is used to measure how well of the firm can generate
return or net earnings per one dollar of Stockholders’ equity. ROE is the ratio that is being watched by
investors and stock analysts. The higher ROE means the firm can use stockholders’ money to generate
sales well. So, higher ROE would be an important factor for players to buy stock.

RETURN ON EQUITY

13.8% 15.5%
11.2%
6.8%

2014 2015 2016 2017 2018

-5.7%

Return on Equity for Whirlpool Corporation in 2018 is -5.7% while the average of last 4-year is 11.8%.
So, we can obviously see the big drop of the value to even minus. This is because of the Net Loss of
the company.

Leverage Ratios

Leverage ratios measure the firm’s risk by looking at the debt level relative to capital.

Debt Ratio
Total Liabilities / Total Assets
Debt Ratio measures the proportion of debt for the firm comparing to its assets. The higher value
indicates that firm has high debts against its assets. Generally, firm prefer a lower value.

DEBT RATIO
0.83

0.74
0.71 0.70 0.70

2014 2015 2016 2017 2018

Debt ratio for Whirlpool Corporation in 2018 is 0.83x while the average of last 4-year is 0.71 which is
lower. We can see that it has increased since 2014 and it is because of the higher short-term debt in
Current Liabilities section.
Debt to Equity
Total Liabilities / Stockholders’ Equity
Debt to equity measures the proportion of debt comparing to its stockholders’ equity. The higher
value indicates that firm has higher debt financing than equity. This can create an addition interest
expense. Moreover, if the value is too high, there is also a high chance for firm to be bankruptcy.

DEBT TO EQUITY
4.72

2.91
2.45 2.35 2.34

2014 2015 2016 2017 2018

Debt to Equity for Whirlpool Corporation in 2018 is 4.72x which is considered very high comparing to
the last 4-year which is 2.51x in average. The stockholders’ equity is quite stable in every year while
the change is in the Current Liabilities part that has increased a lot in 2018 making the ratio jump up.

Interest Coverage ratio

Operating Profit / Interest Expenses
Interest Coverage ratio measures the firm’s ability to cover the interest expense. Operating profit is
being used because it has already deducted the operating cost. So, if the operating profit is high, firm
will be able to pay off interest expense easily. Therefore, the higher number of the ratio the better for
the firm.

INTEREST COVERAGE
5.39
5.06
4.56
3.87

0.93

2014 2015 2016 2017 2018

Interest Coverage Ratio for Whirlpool Corporation in 2018 is 0.93x , the firm has a very low value
comparing to last 4-year average which is 4.72x. 0.93x is below than 1 and it means that the company
cannot using its operating profit to cover its Interest expense.
Efficiency Ratios

Efficiency ratios or sometimes known as Activity ratio used to measure the firm’s performance. This ratio will
measure the firm’s ability to convert assets into earnings. The higher efficiency the better the firm’s
profitability and performance.

Inventory Turnover in days

Cost of goods sold / Average Inventories
Inventory Turnover measures the number of time that firm can sell their products and replace its over
time. The higher turnover, the better because it means that firm can sell products quickly. Also, the
demand for that products are exists.

INVENTORY TURNOVER IN DAYS

58.01
57.58

57.02
56.86
56.19

2014 2015 2016 2017 2018

Inventory Turnover in days for Whirlpool Corporation in 2018 is 57.02 days compared to the average
of last 4-year is 57.2 days which is about the same. The figure is quite stable over past 5 years.

Receivable Turnover in days

Sales / Average Accounts Receivable
Receivable Turnover in days measures the average period of days that firm can collect credit sales
from customers. This number would relate to the firm’s policy such as 30 days credit sales. If the
number is higher than what firm expected, it would lead to liquidity problem.

RECEIVABLE TURNOVER IN DAYS

46.16 46.17 46.28

43.83

42.29

2014 2015 2016 2017 2018

Receivable Turnover in days for Whirlpool Corporation in 2018 is 43.83 days lower than the average
of last 4-year at 45.23 days. The company can collect a credit sale faster than the past which is good
for the company.
Asset Turnover
Sales / Average Total Assets
Asset Turnover measures the firm’s ability to generate sales relative to its assets. Generally, the higher
number the better since it can utilize its assets and resources well.

ASSET TURNOVER
1.12

1.10
1.09 1.08
1.07

2014 2015 2016 2017 2018

Asset Turnover for Whirlpool Corporation in 2018 is 1.1x which is around the average of last 4-year at
1.09x. The company has a very stable Asset Turnover Ratio over past 5 years.
PERFORMANCE GRAPH

The Performance graph below show the cumulative return to stockholders on Whirlpool stock against the total
return of Standard & Poor [S&P] composite 500 stock index and also the total return of the S&P 500 Household
Durables index for the last five fiscal year (2014 – 2018) by using 2013 as a base year. The graph below
assumes that $100 was invested on December 31, 2013.

COMPARISON OF CUMULATIVE FIVE -YEAR

TOTAL RETURN
Whirlpool Corporation S&P 500 Index S&P 500 Household Durables

$170

$150

$130

$110

$90

$70

$50
2013 2014 2015 2016 2017 2018

The graph above shows the stock performance if investors invested in Whirlpool Corporation, S&P500 Index,
and S&P 500 Household Durables starting at 2013 with $100 same for all.

The result shows that if investors invested five years in S&P500 Index, they would get profit for 50.33% which
is highest and is the only one that get profit. On the other hand, investing in S&P500 Household Durables
would get net loss of 0.46% at the end of 5 year. Unfortunately, investing in Whirlpool Corporation stock
would get net loss of 23.67% at the end of 5 year.

In conclusion, investing in Whirlpool Corporation stock shows the worst performance over 5 years past against
S&P500 index and also the S&P500 Household Durable index making it looks unattractive to investors.
COMMON-SIZE ANALYSIS

Common-size analysis or sometimes call Vertical analysis is the way to evaluate the financial information of
company itself over a period of time or comparing to competitors. Common-size analysis make it easier to
compare since it converted to be percentage so whether the there is a difference in size between the company
and their competitors, this method can use to compare regardless size of the company.

Above tables are common-size of income statement for Whirlpool Corporation and the Household Durable
industry which the company belongs to. After we get this information, we can easily compare the company
with the average of the industry to see whether the company perform in the average of the industry.
Income Statement

For the income statement, we rather convert each item as a percentage of Net Sales. Furthermore, items
which has sub-items, we also convert that sub-items as a percentage of particular item. From the table above,
we can easily see the changes of the proportion in each item over time. Moreover, we can compare to the
company’s competitor or even industry too.

Gross Profit Margin

Whirlpool Corporation has a very stable Gross profit margin at the average of 17% approximately in
the past 5 year. However, the average Gross profit margin of the U.S. Household Durables goods is
24% approximately indicating that Whirlpool corporation has lower Gross profit than the average of
the industry.

Operating Profit

Whirlpool Corporation has an operating profit margin or EBIT margin around 6% before it dropped in
2018 to 1.33% while the U.S. Household Durable industry also has a bad figure in Operating profit
margin with a negative value of 3.6% in 2018 while in the past 2014-2017 was 10% approximately.
Therefore, we can see that in 2018 not only Whirlpool Corporation but also the whole average
industry is affected.

Net Earnings

Whirlpool Corporation has an average net earnings at 3% approximately. In 2017 and 2018, the figure
has gradually decreased. However, the Net earnings of U.S. Household Durable industry seems to be
increased. Moreover, the average figure of net earnings for Whirlpool Corporation is lower than in
industry average.
STOCK VALUATION

In this part we are going to determine the intrinsic value of the stock price to see whether the current stock
price is overvalued or undervalued. There are many methods to find intrinsic value but as Whirlpool
Corporation has paid dividends constantly so the method that we are going to use is Dividend Discount Model
(DDM) or known as Gordon Growth model.

Gordon Growth Model Formula:

Value of Stock = D1 / (k – g)

Where:

D1 = Expected Dividend paid per share on next year

Ke = Required rate of return, which can be estimated by using CAPM

g = The expected dividend growth rate

Above is the dividend paid information in the past 5 year. We can see that the growth rate per year is
decreasing. Even though the company got net loss in 2018, but the investors still got dividend paid
higher than past year even the growth rate are lower.

Before we can calculate the present value of stock, we need to find the value of each parameter. Starting with
Ke which is a required rate of return followed by the expected growth rate and then we can finally get an
expected dividend paid in the future.

Required rate of Return

The required rate of return is the rate that investors want it from investing in business. One of the most
popular way to determine is by using Capital Asset Pricing Model or CAPM. CAPM is the method to calculate an
investment risk and the expected return on investment from investors.

CAPM formula :
Re = Rf + B (Rm – Rf)

Where :

Re = Required rate of return

Rf = Risk free rate

Rm = Expected return of market

B = Beta of particular stock

Risk-free rate

We can find Risk-free rate from Long-term U.S. Treasury bonds which is considered as a risk-free
bond. In this calculation, we are going to use 10-year Treasury Bonds rate at December 31,2018 which
is 2.69%

Expected return of market

We use historical price data of S&P500 Index to calculate the average changes in price over 5 year
since 2014-2018. The average changes in price equal to 0.028%. Then we annualized it by times 250
days. So, we finally get the expected market return at 6.93%

Beta

A beta coefficient is used to measure the volatility, or a systematic risk of an particular stock in
comparison to the unsystematic risk of the entire market. Beta is used in the capital asset pricing
model (CAPM), which calculates by using the historical data of return of one asset against and market
returns to see the movement.

If a stock has a beta of 1.0, it indicates that that stock has a perfect correlation to the market while a
beta less than 1.0 indicates that the stock is less volatile than the market. Some stocks even have a
negative beta such as -1.0, this means that the stock has a perfect negative correlation to the market.
So, when the average of the market performs well, that stock would has a poor performance.

From the calculation in the table which we calculate the change in historical price of stock of
Whirlpool corporation and the return of market which is S&P 500 index from 2014 – 2018. After that
we do an average and then convert it into annual by times 250 days.

Beta formula:
Beta Coefficient = Covariance (Rw,Rm) / Variance (Rm)

After calculation beta with formula above, we get Beta for Whirlpool Corporation which equal to
1.089. The Beta value 1.089 is greater than one indicates that this stock is more volatile than the
market almost 10% or it implies that this stock is quite risky while it also has high expected return too.

After we got all value in the CAPM formula so now we can get a required rate of return which is equal
to 7.30%
Expected Dividend Growth Rate

Another parameter needed for Gordon growth formula is the Growth rate of dividend. Since the company paid
dividend constantly so we can use its historical data to find Compound Annual Growth rate or CAGR.

CAGR Formula :
[(Ending Value/Beginning Value)^(1/n)] -1

According to the table we can plug in all figure:

[(4.55 / 2.88 ) ^ ( 1/5 )] -1 = 9.58%

Compound Annual Growth Rate of Whirlpool’s stock 5-year is 9.58%. So, now we can use 9.58% to
estimate the expected dividend paid of the company in the next 5 years.

For long-term, after 5 years the company would still operate its business. So, we would use some
long-term growth rate to be a reference. In this case, we are going to use average long-term GDP
growth rate which equal to 3.22% per year.

Above is the expected Dividend in the next five year using CAGR = 9.58% to estimate it. For the year
after 2022, we use 3.22% which is a long-term average of U.S. GDP growth rate to estimate the long-
term growth rate or the rate that will grow forever since the company still has to operate its business
after 2022.
Present value of Stock

After we can get all of parameter needed in Gordon Growth model, now we are going to calculate the present
value of stock by discounting the expected dividend each for next 5 years to present value.

The table above shows the discounted value for expected dividend in each period. We sum it up all the
discounted value in order to get the present value for Whirlpool Corporation stock price. The figure shows that
144.22 USD per share is a present value in 2018. Therefore, we now see the closing stock price at the end of
2018 which is 106.9 USD per share. So, we can say that the current stock price of 106.9 USD per share at the
end of year 2018 is currently undervalued. So, if investors are considering this stock at this time, they can start
holding Whirlpool’s stock and expect it to grow in the future.
TECHNICAL ANALYSIS
FINANCIAL RISKS

Fluctuations and volatility in the cost of raw materials and components

The cost primary raw material such as metals, resins, and steel that used to manufacture product and
components are fluctuate due to supply and demand, labor cost, transportation cost, laws and regulation,
currency volatility, economic uncertainty, and some other related factors. In 2018, the company deal with the
inflation of raw materials which affect directly to the operating results.

Foreign currency fluctuations

Whirlpool Corporation generates revenues and incur the expenses not only in U.S. market but also in foreign
countries. So, the company has to face with the fluctuation of exchange rates in each currency because this
money will convert into U.S. Dollar. Even though the company can use currency forwards, hedging or options
to manage foreign currency transactions risk, the company may still not totally eliminate it.

Goodwill and indefinite-life intangible asset impairment charges

The company mainly has trademarks as a goodwill and indefinite-life intangible assets. The decline in market
conditions like a decline in projected revenue for trademarks, decline in share price, decline in royalty rates.
These things indicate that the carrying value of goodwill may not be recoverable. Therefore, the company has
to record a goodwill and intangible asset impairment charge as a cost.

Inventory valuation risk

The company may face with the product and components in inventories that might become obsolete or could
not meet a demand. Therefore, if this happen the company will not keep in inventory to make additional cost
incurred.

Uncertainty in global economy

The current economic situation in both domestic and international are uncertain. There are also some related
factors such as the downtrend of business and consumer spending which may cause them to cancel the
placing orders of the company’s products. Or the market uncertainty making business to scale back their
operations or exit the market cause them to cut their spending on investment and it ultimately affect the
company. Finally, it affects to the company’s financial condition.
APPENDIX
INCOME STATEMENT

BALANCE SHEET
STATEMENT OF CASH FLOW