LEGO Group vs. MATTEL Inc.

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 than 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. On the other hand, the gross profit margin of Mattel decreased between 2004 and 2005 from 47.2% to 45.8%. This result is closer to the average of the sector. With respect to Gross profit margin, Lego has better results than Mattel. Thus Lego is more profitable and generates more profits for each dollar of sales.

Extraits

[...] The firm should decrease its Accrued liabilities in order to balance the ratio. b. Quick ratio The Quick ratio is an indicator of a company's short-term liquidity. It measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company. Inventory is excluded because some companies have difficulty turning their inventory into cash. In the event that short-term obligations need to be paid off immediately, there are situations in which the current ratio would overestimate a company's short-term financial strength. [...]

[...] LEGO Group vs. MATTEL Inc. 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. [...]

[...] 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. A healthy operating margin is required for a company to be able to pay for its fixed costs. The higher the margin, the better. Operating profit margin = operating profit or loss x 100 / revenues Operating margin gives us an idea of how much Lego Group makes on each dollar of sales before interest and taxes. [...]

[...] Return on capital employed = operating profit or loss x 100 / capital employed And Capital employed = fixed assets + current assets –current liabilities 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. On the other hand, Mattel has a good Return on Capital Employed ratio that is higher that the sector average. That is mean the company knows how to make its investments profitable and has enough knowledge to generate enough profits. Mattel is more efficient that Lego in making its investments profitable. However, Lego ROCE increased of 34% between 2004 and 2004 whereas the Mattel one dropped of e. [...]

[...] c. Creditors payment period ratio This ratio shows us how much time the company clients take to pay back. Shorter the period is, better it is for the company because the company does not have to allow long credit period to clients. Creditors payment period ratio = Trade creditors x 365 / Cost of sales Creditors payment period did not changed between 2004 and 2005: Lego Group does not have enough power to negotiate new payment delays. It should reconsider it and make its clients pay back faster. [...]