Lego's financial statements analysis (2005)

Résumé du document

The gross profit margin ratio measures the profitability (or gross profit margin) that is generated from each dollar of sales. Profit margin is very useful when comparing companies in similar industries. A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. In that respect, Lego Group increased its Gross profit margin between 2004 and 2005. This ratio shows us that the company has a net income of DKK 0.58 for each corona of sales. This is a rather high number compared to the rest of the sector.

The situation seemed to improve in 2005 and there was an operating profit with a positive profit margin ratio. This means that the Lego Group makes DKK 0.06 for every corona of sales. However, this figure is very low compared to the sector average. It shows that Lego has high variable costs that weigh on the company's profitability.

Extraits

[...] Pokryszka ISEG Paris - MBA Program Group 2D 10/17 Analyzing financial statements: final assignment III- Efficiency ratios a. Debtors collection period ratio This ratio shows us how much time the company takes to pay back its suppliers. Longer the period is, better it is for the company because the cash can be invested until the payment. Debtors collection period = Trade debtors x 365 / Credit sales 2005 Trade debtors Credit sales Debtors collection period days days Referencing : Balance sheet page 36 and 37 This ratio can be interpreted as a characteristic of the company good health. [...]

[...] Pokryszka ISEG Paris - MBA Program Group 2D 3/17 Analyzing financial statements: final assignment b. Operating profit margin ratio The operating profit margin ratio measures the proportion between the turnover of the company and its operating expenses. It shows if the company generates its profit efficiently or not. It is a ratio used to measure a company's pricing strategy and operating efficiency. Operating margin is a measurement of what proportion of a company's revenue is left over after paying for variable costs of production such as wages, raw materials, etc. [...]

[...] Pokryszka ISEG Paris - MBA Program Group 2D 5/17 Analyzing financial statements: final assignment c. Profit before tax margin ratio The Profit before tax margin ratio measures how financial income and expenses influence the profitability of the company, compared to the operating profit margin ratio because profit before tax is equal to operating profit less financial income and expenses. Profit before tax margin = Profit or Loss before tax x 100 / revenues 2005 Profit/(loss) before tax Revenues Profit before tax margin (1,237) 6,315 - Referencing : Income Statement page 35 This ratio shows us that financial income and expenses do not play a substantial role in the profit before tax margin. [...]

[...] Lego's analysis financial statements (2005) Analyzing financial statements: final assignment Summary Profitability ratios a. Gross profit margin ratio b. Operating profit margin ratio c. Profit before tax margin ratio d. Return on capital employed ratio e. Net profit margin ratio II- Liquidity ratios a. Current ratio b. Quick ratio III- Efficiency ratios a. Debtors collection period ratio b. Stock holding period ratio c. Creditors payment period ratio d. [...]

[...] Pokryszka ISEG Paris - MBA Program Group 2D 6/17 Analyzing financial statements: final assignment d. Return on capital employed ratio (ROCE) The return on capital employed ratio measures the efficiency of profit generating power. This ratio also measures the efficiency of the business in using the capital invested in it to make a profit. Therefore, the higher the percentage the more efficient the company is. Return on capital employed = operating profit or loss x 100 / capital employed And Capital employed = fixed assets + current assets –current liabilities 2005 Operating profit/(loss) Capital employed fixed assets + current assets - current liabilities Return on capital employed (1,162) - Referencing : Income Statement page 35, Balance sheet pages 36 and 37 In this case, increase to the ROCE is caused by the following factors : - Prices have increased faster than costs - the company stops investing that is why Capital Employed drops - Working capital has decreased due to a reduction in inventories and an increase in Accounts Payables E. [...]