Minicase 1 Mattel Corporation}

Mattel Corporation makes toys-some very famous toys. Among these are Barbie, FisherPrice, Disney toys (such as Pocahontas), and Hot Wheels cars. In 1994 the company had a great year; in fact, at that point it was the best year in its history. A review of the company's balance sheet, however, reveals that the company's cash dropped from \(\$ 506\) million to \(\$ 239\) million. This drop of \(\$ 267\) million represented a \(53 \%\) decrease in cash. The following additional information was also available from Mattel's financial statements:

\section*{Instructions}

(a) Discuss whether Mattel has suffered a significant reduction in its liquidity as a result of this decline in cash on hand. Use the current ratio and the current cash debt coverage ratio to support your position. [Note: Assume that current liabilities at December 31, 1992, were \(\$ 529,389\).]

(b) Using the data provided, explain why cash declined, and discuss whether this should be a concern to the company and its investors.

Transcribed Image Text:

1994 1993 Cash $ 237,002 Marketable securities 20,581 $ 506,113 17,468 Accounts receivable, net 762,024 580,313 Inventories 339,143 219,993 Prepaid expenses and other current assets 182,675 146,863 Total current assets 1,543,523 1,470,750 Total current liabilities 915,881 783,329 Cash provided (used) by operations 343,439 303,344 Cash provided (used) by investing (526,497) (88,804) Cash provided (used) by financing (86,053) (16,369)