Financial analysis of Hasbro Toy Company and Toys R Us

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COMPANY ASSESSMENT1

Company Assessment

{First name Last name}


Hasbro Toy Company and Toys R Us

The organization of choice, that is a publicly held company, is Hasbro Inc. US. It is a global toy company popularly known for its toy products such as Transformers, Monopoly, Play-Doh, My Little Pony, Nerf, and many others (Hasbro, 2013). The home link can be retrieved from http://www.hasbro.com/?US

The financial information of Hasbro Inc. that will be used in the analysis can be retrieved from the home link - http://investor.hasbro.com/financials.cfm and another source can be retrieved from http://www.bloomberg.com/quote/HAS:US

Hasbro Inc. US has won different global awards, being ranked as 7th among the “100 Best Corporate Citizens” of Corporate Responsibility Magazine and winning as one of the “World’s Most Ethical Companies” of Ethisphere Institute.

It will be of interest to know the financial condition of Hasbro Inc. US and benefit from analysing the cash flow of the company and its competitor, as part of this assignment and also for the chance to know how popular toy companies such as Hasbro Inc. US manage its financial resources.

In looking at the financial documents of Hasbro (Form 10-Q Hasbro Quarterly Report, Nov 5, 2013), it can be hinted of properly managed financial resources and balanced distribution of earnings, expenses, and investment savings of the company. Hasbro, as of September 29, 2013 - Quarter ended, has able to procure an acceptable net earning rate of 9.2%. As the cash flow of Hasbro Inc. US is depleted through cash spending on operating, financing, and investment activities in a certain period, it is compensated by continuous conversion of different assets and activities to cash equivalents. Among the cash equivalent resources of Hasbro which earn the company more expected profits at the end of every period are credit sales, hedged funds, and sales in different distribution channels. The liabilities and debts of the company are also within average levels for successful continuous operations.

In assessing the financial condition of Hasbro Inc. US, against its close competitor Toys R Us, it can be said that Hasbro Inc. is more open in terms of presenting its financial documents to income tax-related purposes (Form 10-Q Hasbro Quarterly Report, Nov 5, 2013). On the other hand, Toys R Us seems more reluctant in showing different transactions and activities of the company (Toys “r” Us Property Company II, LLC., 2013). Hasbro has more total assets of $4,590,145,000 as of September 29, 2013 (Form 10-Q Hasbro Quarterly Report Filed Nov 5, 2013) than Toys R us with $506,113,000 as of August 3, 2013. In terms of cash and cash equivalent transactions, Hasbro Inc. has a total of $588,668,000 as of quarter end of September 29, 2013, while Toys R Us has a total of $50,100,000 as of August 3, 2013 - 26 weeks end (Toys “r” Us Property Company II, LLC., 2013). It can be said that Hasbro Inc. has more internal and external links of sales and cost distribution than Toys R Us with more concentrated operational activities, as seen in the financial documents of each company for year 2013. Hasbro Inc. is also a bigger company than Toys r Us.

In table 4, ROA, Profit Margin, and Asset Utilization Rate of Hasbro Inc. and Toys R Us are presented. Results for Toys R Us are adjusted to have more or less similar time periods covered of at least 13 weeks. For return on assets, Hasbro has slightly higher ROA with 2.74% than Toys R Us with 2.29%. However, for profit margin, Hasbro has lower profit margin of 9.18% than Toys R Us with 19.78% that may be brought by more costs spent of Hasbro in its different activities being a bigger company with more sales channels than Toys R Us, with smaller points of sales distribution channels. However, for asset utilization rate, Hasbro can be said to utilizing its assets more effectively with 30.33% appropriation of revenue as converted from total assets of the company, as compared with Toys R Us with a smaller rate of 5.90%.

Table 4: ROA, Profit Margin, and Asset Utilization Rate of Hasbro Inc. and Toys R Us

Dollar units in thousands

Hasbro Inc. US (Quarter - 3 months – 13 weeks)

Toys R Us (Competitor) – 6 months and 2 weeks -26 weeks

Toys R Us (Adjusted to 13 weeks for relative comparison)

Return on assets = Net income / Total assets

=$125,843 (Hasbro’s net income as of Sep. 29, 2013, Quarter ended) / $4,590,145 (Hasbro’s total assets as of Sep. 29, 2013)

= 0.0274 or 2.74%

=$23,190 (Toys R Us’ net income as of August 3, 2013, 26 weeks ended) / $506,113 (Toys R Us’ total assets as of August 3, 2013)

= .0458 or 4.58%

13 weeks x .0458/26 weeks = .0229 or 2.29%

Return on assets

0.0274 or 2.74%

.0458 or 4.58%

.0229 or 2.29%

Profit margin = Net income / Sales or revenue

=$125,843 (Hasbro’s net income as of Sep. 29, 2013, Quarter ended) /$1,370,348 (Hasbro’s net revenue as of Sep. 29, 2013, Quarter ended)

= .0918 or 9.18%

=$23,190 (Toys R Us’ net income as of August 3, 2013, 26 weeks ended) /$58,732 Toys R Us’ Total revenue as of August 3, 2013, 26 weeks ended)

= 0.3948 or 3.95%

13 weeks x .3948/ 26 weeks = .1974 or 19.78%

Profit margin

.0918 or 9.18%

0.3948 or 39.5%

.1974 or 19.78%

Asset Utilization rate = Revenue / Average Total Assets

= $1,370,348 (Hasbro’s net revenue as of Sep. 29, 2013, Quarter ended) / [($4,590,145 as of Sep 2013 + $4,446,287 as of Sep 2012)/ 2]

=$1,370,348 / $4,518,216

= .3033 or 30.33%

=$58,732 Toys R Us’ Total revenue as of August 3, 2013, 26 weeks ended) / [($506,113 Toys R Us’ Total assets as of August 3, 2013 + $490,165 Toys R Us’ Total assets as of Feb. 2, 2013)/2]

= $58,732 Toys R Us’ Total revenue as of August 3, 2013, 26 weeks ended) / $498,139 Total average assets

= .1179 or 11.79%

13 weeks x .1179/ 26 weeks

Asset Utilization rate

.3033 or 30.33%

.1179 or 11.79%

.05895 or 5.90%

Cited from: Form 10-Q Hasbro Quarterly Report Filed Nov 5, 2013; and Toys “r” Us Property Company II, LLC., 2013)

Hasbro Inc. has many competitive advantages, aside from being one of the most ethical and responsible companies worldwide. Hasbro Inc. extends its ethical rules not only for the children that support its toy products, but also in its way of managing its financial resources. As seen previously, profit margin of Hasbro Inc. is at 9.18% which is all compensated with how the company utilizes its assets to generate revenue --- from corporate management, return on assets and support from company investors, cash equivalent transactions, and many other competitive strengths of the company.

In table 5 and 6, the free cash flow of Hasbro Inc. and Toys R Us are presented. In spite of the higher profit margin of Toys R Us with 19.78%, the calculated free adjusted cash flow of the company $2,636,500. This excludes cash flow at the beginning and end of period. On the other hand, because net earnings of Hasbro are higher than Toys R Us that need to be allocated for different expenses that Hasbro needs to accommodate, the free cash flow of Hasbro is $106,600,000 as of quarter end of September 29, 2013 which is profitable enough considering the many responsibilities and sales channels of Hasbro.

Table 5: Free Cash Flow of Hasbro Inc US (Quarter - 13 weeks, Ended as of September 29, 2013)

Equation

EBIT(1-Tax Rate)

+ Depreciation & Amortization

- Change in Net Working Capital

- Capital Expenditure

Free Cash Flow as of Sep 29, 2013

$155,913

+ $75,526 + $37,677

  • $47,317

- (115,199)

=$106,600

Cited from: Form 10-Q Hasbro Quarterly Report Filed Nov 5, 2013;

In table 6 for toys R Us, it can be said that company does not utilize its resources and assets as effectively as compared to how Hasbro manages its different sales channels and market opportunities. Credit sales and revenue generating activities for Hasbro are much higher. Hasbro also spends a good portion of its assets to investment activities that will later on generate more revenues for the company. On the other hand, Toys R Us has lower net earnings presented, with lower transactions on investment activities for this period, that result to lower free cash flow of the company. However, because there are cash and cash equivalents for the beginning and ending periods for both companies, these cash reserves can support the current free cash flow of the period for continuous operations and management of resources for the next financial periods of both companies.

Table 6: Free Cash Flow of Toys R Us(26 Weeks Ended as of Aug 3, 2013)

Equation

EBIT(1-Tax Rate)

+ Depreciation & Amortization

- Change in Net Working Capital

- Capital Expenditure

Free Cash Flow as of Sep 29, 2013

Adjusted to 13 weeks for comparison

$29,022

+ $6,823 + $

- $25,743

-(7,234)

$5,273

13 weeks x $5,273 / 26 = $2,636.50

Cited from: Toys “r” Us Property Company II, LLC., 2013)

References

Asset utilization rate. (2013). YCharts. Retrieved from

http://ycharts.com/glossary/terms/asset_utilization

Free Cash Flow. (2013). Retrieved from

http://www.investopedia.com/terms/f/freecashflow.asp

Hasbro Inc (2013). Bloomberg. Retrieved from

http://www.bloomberg.com/quote/HAS:US

Hasbro (2013). Retrieved from http://www.hasbro.com/?US

Profit Margin (2013). Retrieved from

http://www.investopedia.com/terms/p/profitmargin.asp

Return on assets. (2013). Retrieved from

http://www.investopedia.com/terms/r/returnonassets.asp

Toys R Us (2013). Geoffrey, LLC. Retrieved from

http://www.toysrus.com/shop/index.jsp?categoryId=2255956

TOYS “R” US PROPERTY COMPANY II, LLC. (2013). Retrieved from

http://phx.corporate-ir.net/phoenix.zhtml?c=120622&p=irol-SECText&TEXT=aHR0cDovL2FwaS50ZW5rd2l6YXJkLmNvbS9maWxpbmcueG1sP2lwYWdlPTkxMzQyMzgmRFNFUT0wJlNFUT0wJlNRREVTQz1TRUNUSU9OX0VOVElSRSZzdWJzaWQ9NTc%3d

Vieland-Boddy (n.d). Efficiency & Asset Utilization Analysis. Retrieved from

http://gaap-ifrs.com/

Form 10-Q Hasbro Quarterly Report Filed Nov 5, 2013. Retrieved from

http://investor.hasbro.com/secfiling.cfm?filingID=46080-13-97&CIK=46080

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