Sunstar Overseas Limited

Quite a bit of uncertainty surrounds the financial statements for Sunstar and further investigation is warranted to better understand the accounting practices used. Based on available information, their financial statements show a profit each year, but it must be noted that their books count the value of inventories as income, though it is not actually revenue. From an operational perspective, the enterprise appears efficient and has posted an operating profit in three of the last four years, but non-operating expenses and high interest expense are weighing down net income, driving a net loss in all four years for which we have data. Rough estimations of cash flow indicate negative cash flow for each year, which is of concern, and debt ratios show that the company’s debt is weighing more and more heavily on its financials. There are indications that the underlying business model may be sound, but without lower cost financing and better cash management this business is unlikely to survive.