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Principles of Finance Videos 166 videos

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Principles of Finance: Unit 4, Mattel’s Real World Metrics 4 Views


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Description:

In this video, we'll take a look at Mattel's real world metrics. We're not in Barbie's Dream House anymore, Toto.

Language:
English Language

Transcript

00:00

Principles of finance ah la shmoop mattel's Real world metrics

00:05

Okay kens and barbies Or you know boys and girls

00:09

let's take another look at mattel under cost of sales

00:14

Right down here Same has cost a good sold We

00:16

see that the number for the june thirty two thousand

00:18

sixteen quarter was five hundred twenty three million lots of

00:22

plastic And if we check out the same period snapshot

00:25

for june thirty two thousand sixteen balance sheet when we

00:27

get this zooming in we see inventory is as eight

00:31

hundred ninety one million Again a lot of plastic So

00:35

our inventory turnover rate during this period was what five

00:39

Twenty three Over Eight Ninety one that's Fifty eight point

00:42

seven percent So was that good Bad ugly What does

00:44

that mean anyway While making a lot of assumptions notionally

00:47

it means that we only sold a bit over half

00:50

of the inventory that we had on hand Was that

00:53

good It cost us a lot to store all that

00:55

plastic Did we have a barbie version Thirty eight point

00:58

Oh that just sat on the shelves What are other

01:00

companies Inventory turnover numbers like is there a tangible allegory

01:05

From something that's easy to digest that can help us

01:08

frame all this always well the store manager of a

01:11

safeway grocery store has a choice of selling capers those

01:15

semi pickle tasting round things that are like the size

01:19

of tiny piece at twenty bucks a jar which cost

01:22

safeway five bucks so safely makes fifteen dollars a jar

01:25

or the store manager can sell diet coke which sells

01:29

for eighteen dollars for a twenty four pack and cost

01:32

safeway fifteen dollars Safeway makes only three dollars a unit

01:36

on diet coke sold So you future graduate in english

01:40

who will run a safeway store someday what's it going

01:42

to be there pip poke or capers way Really hope

01:45

you said coke Why turn over Like how many times

01:49

do you buy capers Like maybe once a month if

01:52

you cook a lot of italian food at home maybe

01:54

maybe twice a year if you don't But how often

01:57

do you need diet coke And we say need not

01:59

want because well you know the caffeine think if you're

02:02

an average american you by at least a few twenty

02:05

four packs a week You drinking He roomie drinks Um

02:08

your friends drinking So while you only make three dollars

02:11

or one fifth of the unit profit that you make

02:15

from a sale of a bottle of capers when so

02:17

you're selling diet coke you probably have fifty times the

02:20

turnover of diet coke versus capers and fifty times three

02:23

hundred fifty bucks two times fifteen is thirty And while

02:26

that's easy math So in the case of mattel's quarter

02:29

here and note that we just used quarterly numbers here

02:32

maybe it was a good idea Maybe it wasn't all

02:34

right Well let's look at the annual Numbers from 2015

02:37

figure some things out So on an annual basis inventory

02:41

was five hundred seven million at the end of two

02:43

thousand fifteen And cog zor costs in this case was

02:46

two point nine billion Roughly so the ratio here's two

02:49

point nine over that five eighty seven figures a four

02:52

point nine three or five times ish Good bad Well

02:55

lot better than it was in the crappy single quarter

02:58

turnover analysis Why here's a int o cubed So we

03:01

turned over our plastic five times in the entire year

03:04

Was that good Bad What We still don't really know

03:07

Our work isn't done We have to look over our

03:09

shoulder at our peers All right How do we do

03:11

that Well we're whispering hasbro to you now Yeah Asset

03:15

turnover All right We're on a roll with his turnover

03:17

thing Inventory turnover covers just one thing Inventory on the

03:22

balance sheet So it ignores a ton of other assets

03:24

we own have invested capital in and should be tracking

03:28

Welcome to asset turnover which is calculated as sales divided

03:32

by total assets Again no thie magic of this formula

03:36

It equates a balance sheet item with an income state

03:39

item So let's take a look at both of the

03:41

mattel sets of books Check out sales for the june

03:44

quarter june thirty two thousand sixteen Nine hundred fifty seven

03:47

million and change Okay so that goes in the numerator

03:50

Then total assets is five point nine Blah blah blah

03:53

billion and note that's billions than dominator And it gives

03:56

us a fraction that looks about like this Nine Fifty

03:58

seven over in five nine three two Alright sixteen percent

04:01

change Well what does that mean Well steppin way back

04:04

It means that we only sold sixteen percent of all

04:07

Of our assets Like if you thought about it in

04:09

a financial laboratory If you invested a million dollars into

04:12

something and this quarter you sold one hundred sixty thousand

04:16

dollars Well you probably feel like you could have invested

04:19

your capital better elsewhere Remember that just because we sold

04:23

one hundred sixty thousand dollars worth of stuff it doesn't

04:25

mean that our profits were one hundred sixty thousand In

04:28

fact they were likely vastly less than one hundred sixty

04:31

grand That is we have a very poor return from

04:34

our invested capital in that time period Let's revisit on

04:37

an annual basis which for a highly seasonal company like

04:40

toy sales Probably a much more fair way to look

04:43

at things because of you know that thing what's called

04:45

Oh yeah Christmas Alright we'll hear the annuals for mattel

04:48

Total sales divided by total assets gets us in a

04:51

five Seven oh two over Some one seven three two

04:53

Yeah about three point three All right again The blank

04:55

stare What does this mean Well it means we turned

04:58

over the dollar volume of our total assets three times

05:02

during the year All right let's make a few numbers

05:04

Why not let's Say our net after everything margin our

05:08

profit margin on our sales was fifteen percent on a

05:11

normal annualized basis Alright over an average say ten year

05:15

period All right so really getting a normalized number here

05:17

we said we're making all this up If that's the

05:19

number than fifteen percent of five point seven billion is

05:22

about eight hundred fifty million bucks and profit there took

05:25

a foundation or base of one point seven billion in

05:29

total assets toe let us achieve that kind of profitability

05:32

of eight hundred fifty million kind of sort of well

05:34

that's one way to frame it anyway and that's pretty

05:36

good probably relatively and were using the very high historic

05:40

profit margins of fifteen percent to get there Well the

05:42

job of our assets is to produce profits for the

05:46

company and since profits are usually so cyclical seasonal and

05:50

generational companies tend to use revenues as the dill emitter

05:53

in the equation because it normalizes volatility meaning profits change

05:57

a lot from year to year quarter quarter but revenues

05:59

generally a relatively stable otherwise you'd have a lot of

06:02

gobbledygook with two bad years of lost followed by a

06:05

record winter year than a crappy one and three mediocre

06:08

ones that it would be hard to do any planning

06:10

based on that set of volatile data Remember also that

06:13

assets are a book value depreciated balance sheet item Recall

06:18

that while long diatribes on how bad accounting rules are

06:22

at times that's how some assets which have been depreciated

06:25

away to nothing like a broadcast license may still be

06:28

worth a ton of money but we might be holding

06:31

them as being almost worthless on our balance sheet So

06:33

if you have an old tractor smelting factory that works

06:37

just fine today thank you very much then as an

06:39

asset it's probably k carried at a very low number

06:43

It makes you appear a lot more efficient as a

06:46

company than you really are Think about it for this

06:49

course Just get the basic concept that you've turned over

06:52

all your assets three times a year for a computer

06:55

software company that would probably be awful since well they

06:58

don't have much in assets or inventory for an automobile

07:01

company at private Great since they have such massive fixed

07:04

costs and capital expenditures just to get to the point

07:07

Where they can stamp out even one car let alone 00:07:10.332 --> [endTime] you know a few hundred thousand

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