Week 2 Discussion Responses 1
Mycole’s Post
BUS627 Week 2 Discussion 1 - Current Assets and Current Liabilities Analysis Case Study
Hi Class,
• 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.
Thanks
Cole
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- final.pdf
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 Margin Ratio (Mergent Online, 2022)
Company Name
Gross
Margin
% -
2022
Gross
Margin
% -
2021
Operating
Margin
% - 2022
Operating
Margin
% - 2021
Net
Profit
Margin
% -
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 Profit
Margin %
- 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.