Posted: February 26th, 2023
Guided Response: Respond to at least two of your fellow students’ or instructor posts in a substantive manner and provide information or concepts that they may not have considered. Each response should have a minimum of 100 words per post and be respectful of others’ opinions and beliefs that differ from your own.
Attached are 4 posts please respond to all 4.
Total of 400 words -100 word response to each post
BUS627 Week 2 Discussion 1 - Current Assets and Current Liabilities Analysis Case Study
• 2022 (LVMH) o Gross profit ratio: 68% o Operating margin ratio: 31.11% o Net income margin ratio: 27.11
• 2021 (LVMH) o Gross profit ratio: 68% o Operating margin ratio: 30.11 o Net income margin ratio: 26.49
Through 2022, LVMH Moët Hennessy Louis Vuitton is classified as luxury goods. Although LVMH has always returned profits in line with other similar brands, over the past two years it has realized an explosion of profitability. The gross profit percentage has steadily remained the same, in the high 60%. However, LVMH’s acquisition of other premium brands that span from fashion, leather goods, wine, spirits, and watches over the past decade have all returned massive profitability, as well, as market share for LVMH. In fact, Hermes is the only other company in the industry that produces a higher level of profitable percent. Yet, Hermes falls indefinitely short of LVMH’s volume in revenue and the large worldwide physical footprint, with over 5700 locations. In 2022, LVMH had a record year in both revenue exceeding EUR 79 billion and over EUR 14 billion in Net profit, both up 23% Y.o.Y. As such, it is typically recommended after a couple of strong years for an established company for it to decline its value before investing, LVMH's business model and overall established brand would be a solid long- term investment as the empire continues to re-invent itself in various ways.
References:https://www.mergentonline.com/companyreports.php?compnumber=52926Links to an external site.
https://r.lvmh-static.com/uploads/2023/01/lvmh_document-financier-2022_uk- finalhttps://www.mergentonline.com/companyreports.php?compnumber=52926 https://www.mergentonline.com/companyreports.php?compnumber=52926 https://r.lvmh-static.com/uploads/2023/01/lvmh_document-financier-2022_uk-final https://r.lvmh-static.com/uploads/2023/01/lvmh_document-financier-2022_uk-final
Michelle’s Post Calculate the gross profit ratio, operating margin ratio, and net income margin ratio for the latest two years, and obtain the industry average ratios (if available). You may use the Mergent Online database, available through the UAGC Library, or another outside resource of your choice.
The Home Depot (THD) Gross Profit Ratio, Operating Margin Ratio, Net Income
MarginRatio (Mergent Online, 2022)
2022Gross Margin % -
- 2022Operating Margin
ProfitMargin % - 2022 Net Profit Margin % - 2021
Home Depot Inc 33.63 33.95 15.24 13.84 10.87 9.74
Analyze these ratios and discuss what each of these ratios tells you about the company’s profitability, and how it compares to the industry averages.
Understanding each of these financial ratios, gross margin, operating margin, and net profit margin, will provide detailed information on how an organization is performing financially. Gross margin can be determined by diving the gross profit of the organization by the net sales. The operating margin is determined by dividing the operating income by the net sales revenue. Finally, the net profit margin provides the information to determine if an organization is profitable and how lending decisions are evaluated if an organization can pay their loans or would they possibly default on them. Based upon this information, I included THDs largest competitor, Lowes Companies, data below for a comparison:
Competitive Information – Lowes Companies (Mergent Online, 2022)Company Name Gross Margin % - 2022 Gross
Margin %- 2021 Operating
Margin % -2022 Operating Margin % - 2021
Net ProfitMargin % - 2022 Net Profit Margin % - 2021 Home Depot Inc 33.63 33.95 15.24 13.84 10.87 9.74
Lowe's Companies Inc 33.30 33.01 12.56 10.77 8.77 6.51
Note any trends in these ratios from year-to-year, and discuss your assessment of the company based on these changes.
Reviewing the gross margin, operating margin, and net profit margin for the past two years for THD does provide information that showed minimal gross margin percentages coming out of the COVID-19 pandemic of .32%, so consumers were doing more projects
at home during the pandemic. There was an increase with both the operating and net profit margins in 2022, so operating costs were increased and should be monitored to avoid any additional increases. Noting that Lowes Companies had similar trends demonstrate that this was applicable to them during the year since the pandemic.
If you were an investor, explain why you would or would not buy stock in the company.
THD continues to post larger than expected earnings, so I would recommend for investors to purchase the stock. The focus for online sales drives business through their e-commerce platform and they increased their supply distribution network by opening three new distribution centers. THD did report better-than expected earnings for second-quarter 2021 due to housing marketing being strong, lower borrowing rates, and limited inventory. (Linecker, 2021) The organization continues to bounce back from supply chain issues from the pandemic, but homeowners are still doing more projects at home with products available in the stores.References:
LINECKER, A. C. (2021, August 17). Home Depot Earnings Top, But Dow Giant Falls Below Buy Point On This Key Metric. Investors Business Daily, N.PAG. Mergent Online. (2022, October 22). Home Depot Inc. (NYS:HD) Retrieved from https://www.mergentonline.com/companyfinancials.php?pagetype=asreported&co mpnumber=13391&period=Annuals&dataarea=BS&range=3¤cy=AsRep&scale=A sRep&Submit=Refresh&csrf_token_mol=a5448da8bfLinks to an external site.https://www.mergentonline.com/companyfinancials.php?pagetype=asreported&compnumber=13391&period=Annuals&dataarea=BS&range=3¤cy=AsRep&scale=AsRep&Submit=Refresh&csrf_token_mol=a5448da8bf https://www.mergentonline.com/companyfinancials.php?pagetype=asreported&compnumber=13391&period=Annuals&dataarea=BS&range=3¤cy=AsRep&scale=AsRep&Submit=Refresh&csrf_token_mol=a5448da8bf https://www.mergentonline.com/companyfinancials.php?pagetype=asreported&compnumber=13391&period=Annuals&dataarea=BS&range=3¤cy=AsRep&scale=AsRep&Submit=Refresh&csrf_token_mol=a5448da8bf
Inventory Turnover Ratio = Cost of Goods Sold (COGS) / Average Inventory
2021: $10,483M / $4,313M = 2.43
2020: $9,424M / $4,229M = 2.23
Number of Days’ Sales in Inventory = Number of Days in the Period / Inventory Turnover Ratio
2021: 365 / 2.43 = 150 days
2020: 365 / 2.23 164 days
Inventory turnover ratio is the number of times inventory is sold and replaced during the operating cycle (Porter & Norton, 2018). This ratio measures how efficiently a company uses its inventory. A low ratio can indicated weak sales and excess inventory whereas a high ratio can indicate strong sales but perhaps a poor inventory replenishment. The number of days’ sales in inventory refers to how long it takes for a company to convert its inventory to sold goods. The ratios for Medtronic are on part with other competitors in the medical device industry (Stock Analysis, 2023). Compared to other industries, specifically retail, the turnover ratio is quite low. However, in the medical device industry, these products are used less commonly that are typical retail goods and therefore would be sold and replenished less. The financials from 2020 indicated a lower inventory turnover ratio than in 2021, but the ratio appears to be quite consistent. The number of days’ sales in inventory for 2020 are higher than 2021. This can be attributed to the lower purchase volume during the pandemic as elective procedures were being pushed out for safety purposes.
Medtronic appears to be doing a good job at managing inventory and converting to sales when compared to its past performance and industry averages. As an investor, I would be confident in Medtronic’s ability to secure sale and ensure there is a stock to support hospitals’ needs. It does appear improvements have been made in the reduction of days’ sales in inventory which decreased by 14 days YoY and the inventory turnover ratio increased.
Medtronic. (2020). Annual Report. Retrieved from https://www.annualreports.com/HostedData/AnnualReportArchive/m/NYSE_MD T_2020 Links to an external site.Links to an external site.https://www.annualreports.com/HostedData/AnnualReportArchive/m/NYSE_MDT_2020 https://www.annualreports.com/HostedData/AnnualReportArchive/m/NYSE_MDT_2020
Medtronic. (2021). Annual Report. Retrieved from https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MDT_20 21 Links to an external site.Links to an external site. Porter, G., & Norton, C. (2018). Using financial accounting information: The alternative to debits and credits (10th ed.). Retrieved from https://www.cengage.comLinks to an external site.
Stock Analysis. (2023). Analysis of Short-term (operating) Activity Ratios. Retrieved from https://www.stock-analysis-on.net/NYSE/Company/Medtronic-PLC/Ratios/Short-term- Operating-Activity
The company I will continue to be analyzing will be Gamestop (NYSE: GME).
To begin the discussion, the equations for the ratios are as follows:
• Inventory Turnover Ratio = Cost of Goods Sold (COGS) / Average Inventory (Porter & Norton, 2018)
• Number of Days’ Sales in Inventory = Number of Days in the Period / Inventory Turnover Ratio
To support the calculations, below is a table of COGS and inventory data from the annual reports:
Using the information gathered, the Inventory Turnover Ratio comes out to be 6.15 for 2021 and 5.24 for 2020. The Number of Days’ Sales in Inventory comes out to be 58.6 for 2021 and 68.7 for 2020.
Industry Average Comparison
The industry Gamestop competes in has an average of 5.16 for the Inventory Turnover Ratio, which is not far off from Gamestop’s 2021 and 2020 ratios. This shows that Gamestop is executing inventory turnover and holding an inventory that competes with the larger electronics players that it competes against. As Gamestop continues to reduce its brick-and-mortar footprint, it may be able to further reduce its inventory throughhttps://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MDT_2021 https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MDT_2021 https://www.cengage.com/ https://www.cengage.com/
supply chain optimization and partnering with larger organizations for next day inventory replenishment.
Ratio Discussion and Investor Recommendation
These metrics can change drastically if an organization holds increased inventory and sales drop. For example, if in a given year an organization makes an effort to build inventory at the same time sales are declining, these ratios will be an early indication of issues within the organization that they will have to solve in the future with aging inventory (Porter & Norton, 2018).
As an investor, I would be satisfied with the company’s inventory management based on their ratios and compared against the industry average. Gamestop is turning inventory over 5-6 times a year. I would be interested to see, however, a further breakdown of their inventory in terms of obsolete / aging segments of inventory as innovation continues to disrupt the gaming industry. That would be an area of concern as it is also where the auditor’s focused during annual report evaluation. Additionally, it would be of value to separate the hardware versus software segments of the inventory to understand if Gamestop was managing the declining segments of its sales in a fashion that would be worthy of investment (D’Anastasio, 2022).
D’Anastasio, C. (2022). GameStop Reports Revenue Decline Amid Broader Gaming Slump. Bloomberg.Com, N.PAG. Retrieved from https://library.uagc.edu/index.aspxLinks to an external site. Gamestop (2022). 2021 Annual Report - Investor Relations. Gamestop. Retrieved from https://news.gamestop.com/Links to an external site. Gamestop (2021). 2020 Annual Report - Investor Relations. Gamestop. Retrieved from https://news.gamestop.com/Links to an external site. Mergent Online (2022). Gamestop, Inc. Company and Competitor Database. Retrieved from http://www.mergentonline.comLinks to an external site. Porter, G., & Norton, C. (2018). Using financial accounting information: The alternative to debits and credits (10th ed.). Retrieved from https://www.cengage.comLinks to an external site.https://library.uagc.edu/index.aspx https://library.uagc.edu/index.aspx https://news.gamestop.com/ https://news.gamestop.com/ http://www.mergentonline.com/ https://www.cengage.com/ https://www.cengage.com/
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