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

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Okay kens and barbies Or you know boys and girls

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

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Right down here Same has cost a good sold We

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see that the number for the june thirty two thousand

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sixteen quarter was five hundred twenty three million lots of

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plastic And if we check out the same period snapshot

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for june thirty two thousand sixteen balance sheet when we

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get this zooming in we see inventory is as eight

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hundred ninety one million Again a lot of plastic So

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our inventory turnover rate during this period was what five

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

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seven percent So was that good Bad ugly What does

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that mean anyway While making a lot of assumptions notionally

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it means that we only sold a bit over half

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of the inventory that we had on hand Was that

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good It cost us a lot to store all that

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plastic Did we have a barbie version Thirty eight point

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Oh that just sat on the shelves What are other

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companies Inventory turnover numbers like is there a tangible allegory

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

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frame all this always well the store manager of a

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safeway grocery store has a choice of selling capers those

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semi pickle tasting round things that are like the size

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of tiny piece at twenty bucks a jar which cost

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safeway five bucks so safely makes fifteen dollars a jar

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or the store manager can sell diet coke which sells

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for eighteen dollars for a twenty four pack and cost

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safeway fifteen dollars Safeway makes only three dollars a unit

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on diet coke sold So you future graduate in english

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

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to be there pip poke or capers way Really hope

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you said coke Why turn over Like how many times

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do you buy capers Like maybe once a month if

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you cook a lot of italian food at home maybe

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

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do you need diet coke And we say need not

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

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an average american you by at least a few twenty

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four packs a week You drinking He roomie drinks Um

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your friends drinking So while you only make three dollars

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or one fifth of the unit profit that you make

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from a sale of a bottle of capers when so

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

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turnover of diet coke versus capers and fifty times three

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hundred fifty bucks two times fifteen is thirty And while

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

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here and note that we just used quarterly numbers here

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

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

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figure some things out So on an annual basis inventory

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was five hundred seven million at the end of two

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thousand fifteen And cog zor costs in this case was

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

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point nine over that five eighty seven figures a four

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point nine three or five times ish Good bad Well

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lot better than it was in the crappy single quarter

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

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turned over our plastic five times in the entire year

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

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

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shoulder at our peers All right How do we do

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

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

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thing Inventory turnover covers just one thing Inventory on the

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balance sheet So it ignores a ton of other assets

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we own have invested capital in and should be tracking

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Welcome to asset turnover which is calculated as sales divided

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by total assets Again no thie magic of this formula

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It equates a balance sheet item with an income state

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

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mattel sets of books Check out sales for the june

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quarter june thirty two thousand sixteen Nine hundred fifty seven

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million and change Okay so that goes in the numerator

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Then total assets is five point nine Blah blah blah

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

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us a fraction that looks about like this Nine Fifty

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seven over in five nine three two Alright sixteen percent

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change Well what does that mean Well steppin way back

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It means that we only sold sixteen percent of all

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Of our assets Like if you thought about it in

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a financial laboratory If you invested a million dollars into

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something and this quarter you sold one hundred sixty thousand

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dollars Well you probably feel like you could have invested

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your capital better elsewhere Remember that just because we sold

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

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mean that our profits were one hundred sixty thousand In

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fact they were likely vastly less than one hundred sixty

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grand That is we have a very poor return from

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

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an annual basis which for a highly seasonal company like

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toy sales Probably a much more fair way to look

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

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

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Total sales divided by total assets gets us in a

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five Seven oh two over Some one seven three two

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Yeah about three point three All right again The blank

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stare What does this mean Well it means we turned

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over the dollar volume of our total assets three times

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

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

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profit margin on our sales was fifteen percent on a

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normal annualized basis Alright over an average say ten year

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period All right so really getting a normalized number here

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

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number than fifteen percent of five point seven billion is

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about eight hundred fifty million bucks and profit there took

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a foundation or base of one point seven billion in

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total assets toe let us achieve that kind of profitability

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of eight hundred fifty million kind of sort of well

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

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good probably relatively and were using the very high historic

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profit margins of fifteen percent to get there Well the

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job of our assets is to produce profits for the

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company and since profits are usually so cyclical seasonal and

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generational companies tend to use revenues as the dill emitter

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in the equation because it normalizes volatility meaning profits change

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a lot from year to year quarter quarter but revenues

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

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gobbledygook with two bad years of lost followed by a

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record winter year than a crappy one and three mediocre

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ones that it would be hard to do any planning

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based on that set of volatile data Remember also that

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assets are a book value depreciated balance sheet item Recall

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that while long diatribes on how bad accounting rules are

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

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away to nothing like a broadcast license may still be

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worth a ton of money but we might be holding

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them as being almost worthless on our balance sheet So

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if you have an old tractor smelting factory that works

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just fine today thank you very much then as an

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

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It makes you appear a lot more efficient as a

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company than you really are Think about it for this

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

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all your assets three times a year for a computer

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software company that would probably be awful since well they

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

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company at private Great since they have such massive fixed

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costs and capital expenditures just to get to the point

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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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