By
Anna Stoycheva
BUS 330b: Corporate Finance I
Prof. S. Tonova
The LEGO Group
Financial Statement Analysis
Stoycheva, Anna
BUS330c: Corporate Finance I
THE LEGO GROUP OVERVIEW
The LEGO Group is a family owned toy manufacturing company. It was founded by Ole Kirk Christiansen in 1932 in Billund, Denmark. The name LEGO came
up by combining the two letters of the Danish words leg godt, meaning play well. The name reflects the main philosophy of the LEGO Group; that children
should be able to learn and develop through play - something which the company believes enriches the lives of children.
BALANCE SHEET - COMPARISON FOR 2013/2012/2011
In the table below there is a simple comparison between the last three years with variances both in actual numbers and percentage;
Al numbers are in million DKK
Assets
2013
Variance
%
Varian
ce
2012
Variance
%
Varianc
e
2011
Non-current assets:
26
Intangible assets
Property, plant,
equpiment
Other non-current
assets
Total non-current
assets
Total current assets
Receivables
Inventories
Total assets
Equity and
Liabilities
0,00
6
290,00
20
51,00
1
724,00
24%
9,00
38%
566,00
28
9,00
6
839,00
11
113,00
9
044,00
1
824,00
17
952,00
19
19,00
1
171,00
10%
0,00
34%
395,00
13
155,00
1
930,00
330,00
2
402,00
116%
119,00
1
600,00
7%
4,00
4
39%
-3%
36%
10%
909,00
11
443,00
6
642,00
1
705,00
16
352,00
11
17,00
1
207,00
2
241,00
15%
7,00
33%
702,00
24%
202,00
244,00
4%
398,00
164,00
3
448,00
11%
541,00
27%
12
904,00
3
9
6
1
Stoycheva, Anna
BUS330c: Corporate Finance I
Retained earnings
LEGO share of equity
Total equity
Total non-current
liabilities
Total current liabilities
Total liabilities
Total equity and
liabilities
11
335,00
11
075,00
11
075,00
1
144,00
5
733,00
6
877,00
17
952,00
1
447,00
1
245,00
1
211,00
060,00
2
567,00
2
881,00
2
889,00
630,00
1
189,00
6
488,00
16
352,00
559,00
3
448,00
15%
888,00
13%
830,00
9
9
12%
864,00
42
716,00
327,00
167%
389,00
1
600,00
6%
8,00
6
-5%
10%
7
35%
321,00
41%
949,00
6
6
41%
975,00
1
-60%
058,00
24%
871,00
9%
929,00
4
5
27%
12
904,00
INCOME STATEMENT COMPARISON FOR 2013/2012/2011
Similar table comparing the statement of income for the past 3 years;
2013
(in mDKK)
25
Revenue
382,00
-
Production costs
17
Gross profit
Sales and distribution
expenses
7
598,00
784,00
6
635,00
Administrative expenses
1
359,00
%
Varian
ce
Variance
1
977,00
840,00
1
137,00
485,00
33,00
8%
12%
7%
8%
2%
2012
23
405,00
6
758,00
16
647,00
6
150,00
1
326,00
Variance
4
674,00
- 1
239,00
3
435,00
893,00
222,00
%
Varian
ce
25%
22%
26%
17%
20%
2011
18
731,00
5
519,00
13
212,00
5
257,00
1
104,00
Stoycheva, Anna
BUS330c: Corporate Finance I
Other operating expenses
1
454,00
19%
Operating profit
336,00
Financial income
13,00
110,00
Financial expenses
Profit before income
tax
Tax on profit for the year
235,00
384,00
6,00
5%
-32%
339,00
-76%
8
717,00
211,00
2
120,00
10%
11%
6
Net profit for the year
119,00
9,00
449,00
7
239,00
-
1
219,00
7
952,00
506,00
9%
522,00
1
909,00
5
613,00
34,00
2
286,00
15,00
291,00
1
980,00
- 3
291,00
- 1
311,00
RATIOS
Table of some of the most important financial ratios, again compared between the last three years with the variances in %;
Ratios
2013
%
Varian
ce
2012
%Varia
nce
2011
3%
40%
1
185,00
5
666,00
3
-44%
184%
4,00
158,00
5
36%
542,00
-238%
382,00
1
6
-19%
924,00
Stoycheva, Anna
BUS330c: Corporate Finance I
Liquidity ratios
Current ratio
Quick ratio
Efficiency ratios
Inventory
turnover
Total assets
turnover
Days sales
outstanding
Profitability ratios
Operating margin
Profit margin
Return on assets
Return on equity
1,94
1,62
3%
1%
1,89
1,61
0%
2%
1,89
1,57
13,92
1%
13,73
13%
12,16
1,41
-1%
1,43
-1%
1,45
130,06
26%
103,58
-17%
124,67
32,84%
24,11%
34%
58,40%
-3%
1%
42%
-12%
33,98%
23,98%
24%
66,7%
12%
8%
-35%
0%
30,25%
22,20%
37%
66,80%
RATIO ANALYSIS
CURRENT RATIO
This ratio reflects the number of times short-term assets cover short-term liabilities and is a fairly accurate indication of a company's ability to service its
current obligations. The current ratio for LEGO is 1.94, which compared to the 1.89 for the previous 2 years indicates the company's ability to service shortterm obligations is satisfactory.
QUICK RATIO
This ratio measures immediate liquidity. A higher number is preferred because it suggests a company has a strong ability to service short-term obligations. As
we can see from the table, the Quick ratio has been growing slowly but steadily for the past couple of years, which again indicates that the companys ability
to service short-term obligations is favorable.
Stoycheva, Anna
BUS330c: Corporate Finance I
INVENTORY TURNOVER
This ratio shows how many times a company's inventory is sold and replaced over a period. LEGO has been maintaining a steady average of around 13 for the
last couple of years. Because of the specifics of the industry, I couldnt really find the industry averages. In general, however, a low turnover implies poor
sales, while a strong one implies strong sales or ineffective buying. We cant really know what this ratio shows for LEGO, since its very ambiguous and it needs
to compared to industry averages, in order for conclusions to be made.
TOTAL ASSETS TURNOVER
This ratio measures a company's ability to produce sales in relation to total assets to determine the effectiveness of the company's asset base in producing
sales. A higher number is preferred, indicating that a company is using its assets to successfully generate sales. Sales to assets for LEGO is 1.41, which
compared to 1.43 for 2012 and 1.45 fo4 2013 indicates the company's performance in this area is lacking and management should consider taking measures to
improve this ratio.
DAYS SALES OUTSTANDING (DSO)
A measure of the average number of days that a company takes to collect revenue after a sale has been made. The number is quite high, and even though it
did decrease by 17% in 2012, in 2013 we can see it increasing again by 26%, going to 130. The high DSO number shows that the company is selling its product to
customers on credit and is taking much longer to collect the money.
OPERATING MARGIN
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, such as interest on debt. From the figures in the table we can see that the numbers for LEGO are pretty good, despite the slight
decrease for 2013.
PROFIT MARGIN
Measures how much out of every dollar of sales a company actually keeps in earnings. Profit margin is displayed as a percentage; a 20\% profit margin, for
example, means the company has a net income of $0.20 for each dollar of sales. The profit margin for LEGO has been increasing in the last couple of years,
which is a good indicator that the company is performing well.
Stoycheva, Anna
BUS330c: Corporate Finance I
RETURN ON ASSETS
This ratio measures how effectively a company's assets are being used to generate profits. It is one of the most important ratios when evaluating the success
of a business. The percentage return on assets dropped drastically from 2011 to 2012, but for 2013 LEGO succeeded in increasing it again, which implies that
the company is competitive and is operating successfully.
RETURN ON EQUITY
This ratio expresses the rate of return on equity capital employed and measures the ability of a company's management to realize an adequate return on the
capital invested by the owners in a company. A higher number is preferred for this commonly analyzed ratio. After succeeding in maintaining the same ROE
rate for 2011 and 2012, LEGO seems to be having troubles in 2013, with a drop of 12%, which indicates management may not be effectively managing the
profits earned based on the owners investment in the company.
STOCK VALUATION
Since there are no stocks available to the general public, it is pretty hard to find any information about that for Lego online or in any database. Thats why I
used the firm multiples method, comparing Hasbros (another toy-manufacturing company) P/FCF ratio. Here are the numbers I got.
Stoycheva, Anna
BUS330c: Corporate Finance I
(mDKK)
FCF
2013
6
744,00
(2
747,00)
3
997,00
P/FCF for Hasbro as of Dec.
2013
24,04
Cash flow from operations
Investment in operating
capital
Conversion from mDKK to mUSD
Price for Lego Stock
671,50
16
142,86
Price per share(205 shares
as of December 2013
78,75
Of course its not a great method of calculating the price, because according to those calculations, a share of the Lego Group costs 78 million dollars which
might be true, but I really doubt it.
