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

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

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

Transcript

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