No. 0007 · Det ærligste år i LEGOs historie · 1 of 3
LEGO 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
No. 0007 · Det ærligste år i LEGOs historie · 2 of 3
Work 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
No. 0007 · Det ærligste år i LEGOs historie · 3 of 3
LEGO'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)
No. 0007 · Det ærligste år i LEGOs historie
Well done. Now the class plays.
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