Det ærligste år i LEGOs historie
The LEGO Group, 2004 · Regnskabsanalyse · Read the study: maxnoble.com/study/0007
For the class
1LEGO lost DKK 1,931 million in 2004, yet DKK 774 million came into the bank from operations. How can both be true?
2Work out return on assets, the cost of debt and the interest margin. What does the margin tell the board?
3LEGO's gearing rose in 2004, but its debt did not grow. How?
Answers · for the teacher
No. 0007 · Det ærligste år i LEGOs historie
1LEGO lost DKK 1,931 million in 2004, yet DKK 774 million came into the bank from operations. How can both be true?
The write-down of the factories cost no cash in 2004. That money was spent many years earlier; the accounts simply admitted it was lost. A loss on paper and empty pockets are not the same thing. LEGO used the cash from operations to pay down its bank loans.
In the study: Key figure 7 of 7 (The answer to the puzzle) · Your verdict
2Work out return on assets, the cost of debt and the interest margin. What does the margin tell the board?
ROA = −1,122 ÷ 8,089 × 100 = −13.9%. Debt = 8,089 − 2,948 = DKK 5,141 million; cost of debt = 219 ÷ 5,141 × 100 = 4.3%. Interest margin = −13.9 − 4.3 = −18.1 percentage points. It is negative, which the study calls a stop sign for new debt: the assets earn less than the loans cost, so debt amplifies the owners' loss.
In the study: Key figures 3 and 4 of 7
3LEGO's gearing rose in 2004, but its debt did not grow. How?
In 2003 debt was DKK 5,157 million and equity DKK 4,892 million: gearing 5,157 ÷ 4,892 = 1.05. In 2004 debt was 5,141 and equity 2,948: gearing 5,141 ÷ 2,948 = 1.74. The debt stayed flat; the equity shrank. Gearing can rise without anyone borrowing a krone more.
In the study: Key figure 5 of 7 (The amplifier)
Answer key · all nine key figures, from the study's own figures (DKK million)
| Key figure | Working | Result |
|---|---|---|
| Profit margin | −1,122 ÷ 6,704 | −16.7% (before the clean-up: 103 ÷ 6,704 = 1.5%) |
| Asset turnover | 6,704 ÷ 8,089 | 0.83 times (2003: 0.72) |
| Return on assets | −1,122 ÷ 8,089 | −13.9% |
| Cost of debt | 219 ÷ 5,141 | 4.3% |
| Interest margin | −13.9 − 4.3 | −18.1 percentage points |
| Gearing | 5,141 ÷ 2,948 | 1.74 times (2003: 1.05) |
| Return on equity | −1,931 ÷ 2,948 | −65.5% |
| Equity ratio | 2,948 ÷ 8,089 | 36.4% (with the subordinated loan: 46.3%) |
| Current ratio | 3,615 ÷ 1,473 | 245% |
Hand out page 1 after the reading. Page 2 holds the answers. Every answer is in the study; nothing new is added.