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 compared to 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.
The situation seemed to improve in 2005 and there was an operating profit with a positive profit margin ratio. This means that the Lego Group makes DKK 0.06 for every corona of sales. However, this figure is very low compared to the sector average. It shows that Lego has high variable costs that weigh on the company's profitability.
[...] Pokryszka ISEG Paris - MBA Program Group 2D 8/17 Analyzing financial statements: final assignment II- Liquidity ratios a. Current ratio Current ratio is a liquidity ratio that measures company's ability to pay short-term obligations. the Higher the ratio, the more liquid the company is. If the current assets of a company are more than twice the current liabilities, then that company is generally considered to have good short-term financial strength. If current liabilities exceed current assets, then the company may have problems meeting its short-term obligations. [...]
[...] Pokryszka ISEG Paris - MBA Program Group 2D 4/17 Analyzing financial statements: final assignment The situation seems to be better in 2005 : there is an operating profit and the operating profit margin ratio is positive. This means that Lego Group makes DKK 0.06 for every corona of sales. However, this figure is very low comparing to the sector average. It shows that Lego has high variable costs that weight on the company's profitability. E. Pokryszka ISEG Paris - MBA Program Group 2D 5/17 Analyzing financial statements: final assignment c. [...]
[...] Profit before tax margin = Profit or Loss before tax x 100 / revenues 2005 Profit/(loss) before tax Revenues Profit before tax margin (1,237) 6,315 - Referencing : Income Statement page 35 This ratio shows us that financial income and expenses do not play a substantial role in the profit before tax margin. The difference is only of that means for every corona of sales, only DKK 0,04 comes from financial income. E. Pokryszka ISEG Paris - MBA Program Group 2D 6/17 Analyzing financial statements: final assignment d. [...]
[...] Pokryszka ISEG Paris - MBA Program Group 2D 12/17 Analyzing financial statements: final assignment 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 2005 Trade creditors Cost of sales = Production costs Creditors payment period days days Referencing : Balance sheet page 36 and Income statement page 35 Creditors payment period did not changed between 2004 and 2005 : Lego Group does not have enough power to negotiate new payment delays. [...]
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