Principles of Finance: Unit 3, Forecasting Molded Plastics

Let's take a look at Mattel, the company that brought you Barbie and her literal boy toy, Ken. We'll dig into the numbers.

CoursesFinance Concepts
Principles of Finance
FinanceFinancial Responsibility
Personal Finance
Finance and EconomicsPrinciples of Finance
LanguageEnglish Language
Life SkillsPersonal Finance
SubjectsFinance and Economics

Transcript

00:21

girl and value added plastics of all shapes and sizes

00:25

We're reading through the numbers from a few perspectives potential

00:29

equity investor potential debt lender existing competitors like hasbro potential

00:35

foreign partner in the whole bunch of others now that

00:37

we could wear So just to stare at this charge

00:40

for a few moments and we're going to mumble here

00:44

booth all right so well what do we see here

00:47

The future goes to the left that is two thousand

00:50

thirteen is on the far right and we can see

00:52

that revenues are basically flat in north america flat is

00:55

not very good in the context of flat is compounded

00:59

by the fact that this period of time was a

01:01

very good one in full economy north america So the

01:04

first thing we need to figure out is how mattel

01:06

did against the rest of the market Maybe we're in

01:09

a recession and flat was the new up now off

01:12

of an economic bottom in two thousand ten while the

01:15

region recovered nicely So for mattel to be on ly

01:18

flat on revenues there well that means the company lagged

01:22

in progress versus the overall market So there must be

01:25

other things going on Like what Well one potential problem

01:29

is that a competitors building market share and eating away

01:32

our own share Are there other dolls eating the lunch

01:35

of american girl in the gang Maybe nothing obvious to

01:38

see here yet Or maybe kids just aren't into dolls

01:42

anymore and the barbie iphone well just isn't that big

01:44

of a deal when a real life phone isn't that

01:46

much more expensive than a standard barbie plastic setup But

01:49

regardless revenues which should look robust are anemic at best

01:54

All right moving on how international is ugly so there

01:57

isn't one big competitor that's the problem second potential issue

02:00

here is the problem global or just us based or

02:04

just international more mumbling looking at numbers tryingto seek an

02:08

answer here Well let's See the company went from three

02:10

point three billion in two thousand thirteen only two point

02:13

Six billion in two thousand fifteen and it's likely they're

02:16

fixed Recurring cost didn't drop by much shmoop well in

02:21

international markets companies have to maintain offices relationship with retailers

02:25

stocking fees marketing arrangements with media et cetera The international

02:29

revenues are particularly bad here Domestic on the other hand

02:32

well grew nicely If you believe the numbers the tells

02:35

cost for international stayed the same while revenue went down

02:39

All right well if the company was a seven hundred

02:41

million dollars in operating profit company in two thousand thirteen

02:45

from international markets well they're likely a zero margin business

02:49

at the end of two thousand fifteen so basic math

02:52

would say that operating profit took a massive hit All

02:56

right so check international is a problem We have other

02:58

problems Well let's look at some specific product lines Mumbling

03:02

mumbling Interesting That american girl has her own line Wow

03:06

she's powerful she's A pip All right Well she comprises

03:08

such a large part of mattel's revenues while she deserves

03:12

her own line And she was an acquisition by the

03:14

company So breaking her out is likely a good accounting

03:17

decision And well easy todo but sadly she's not doing

03:21

well six hundred sixty million dollars in revenues in two

03:23

thousand thirteen down under six hundred million in two thousand

03:26

fifteen The trend is not her friend All right ignore

03:30

adjustments for now and just look at net sales here

03:33

Six point five billion in two thousand thirteen down to

03:37

five point seven billion two thousand fifteen ouch were declining

03:40

here And just to drive the last nail into the

03:43

very negative assessment of the company Well look at the

03:46

bottom line here Free tax income two thousand thirteen was

03:49

one point one billion It was way less than half

03:52

that in two thousand fifteen Well what happened We've identified

03:55

two big potential issues American girl product line kind of

03:59

dying and international Definitely dying Well toa do good diligence

04:04

is a financial manager You just start calling around If

04:07

you were good you'd go as low as you can

04:09

go on the food chain as you could The best

04:12

call you could make would be to the people actually

04:15

directly interfacing with customers The sales clerks If you were

04:18

an investor you'd call and ask why barbie in american

04:22

girl aren't selling and you might get a lot of

04:25

it is kind of boring or who we're selling a

04:27

lot of high tech toys now instead or we don't

04:30

stock or any more the image is offensive to modern

04:34

women Yeah stuff like that Well in this case we're

04:37

focused on revenues here Why are we focused on revenues

04:40

Because the marginal cost of stamping ah hunk of plastic

04:43

and painting it is relatively whoa if the dolls cost

04:46

five bucks or six bucks or seven bucks when it

04:48

doesn't really matter when they retail for thirty and wholesale

04:51

for twenty the problem here isn't just an expenses related

04:55

one it's a revenues related one and kind of both

04:58

meaning that expenses have been flat particularly internationally while revenues

05:02

have declined at a spurious rate Well at this point

05:05

we're going to stay cursory on the analysis but over

05:07

time will cover low margin businesses in painful detail and

05:11

how a change in one tiny cost in foot like

05:15

fuel prices for an airline that can crush profit margin

05:18

especially when they're highly leveraged like most airlines are the

05:21

bottom line is that a good financial manager will go

05:23

over everything that comprises elements to make their bottom line

05:27

Revenues operating expenses interest expenses taxes the logic of dividends

05:32

and payout ratios And don't worry that we didn't cover

05:35

all these issues In this video There will be coverage

05:37

of them and all the next set of videos In 00:05:40.04 --> [endTime] a painful detail we promise Okay