Tài liệu 5Cs Model

THE WORLD’S MATTEL Contents A. Company Background ............................................................................................. 1 B. Analyse Credit Standard of Mattel: .........................................................................3 I. Financial Analysis .................................................................................................3 1. Market value of company ...............................................................................5 2. Liquidity .........................................................................................................6 3. Debt management & Coverage ......................................................................8 4. Performance ....................................................................................................9 Five Cs ‘ model Analyse: .................................................................................10 II. C. 1. Character : .....................................................................................................10 2. Capital :.........................................................................................................11 3. Capacity ........................................................................................................12 4. Condition: .....................................................................................................13 5. Collateral: .....................................................................................................15 Conclusion: ............................................................................................................15 A. Company Background In 1945, Harold "Matt" Matson and Elliot Handler founded Mattel Creations in El Segundo, California, although Matson sold his stake to Handler soon after founding. The company started out making picture frames, with a side business in making dollhouse furniture from the scraps. Eventually Mattel turned its wood working equipment to making a child-sized ukulele, and the company had its first hit product. Mattel began manufacturing other kinds of toys, and by 1955 it was worth a half million dollars and had attracted the attention of the Walt Disney Company. Disney offered Mattel a gamble: they could sponsor a segment of the newly developed Mickey Mouse Club for a year, but it would cost nearly the entire net worth of the company. The Handlers took the bet, revolutionizing advertising in the toy industry and nearly tripling Mattel's sales in just three years. The Handlers compounded their success by introducing the Barbie doll, named after their daughter Barbara, in 1959. In 1977, Mattel entered the electronics game industry as part of its diversification strategy, introducing the Intellivision, a direct competitor to the Atari 2600. Unfortunately, for Mattel, the American video games industry collapsed a few years later, and many of their non-toy ventures were taking substantial losses. By 1984, Mattel had either sold off or closed all nontoy-related subsidiaries to refocus on their core business. After their disastrous diversification attempts, Mattel launched an internal campaign to maximize their core brands while also looking for new brands with core potential. A major part of this campaign was to renew the company's association with Disney, forming an alliance that gave Mattel the licenses for not only Disney's classic characters, but their contemporary hits as well. Another major component of the campaign was another round of acquisitions, this time focusing on other toy companies with solid core products. Mattel 1 THE WORLD’S MATTEL acquired Fisher-Price, Power Wheels, Cabbage Patch Kids and others, and they merged with Tyco Toys. The 1990s were a period of rapid growth for the company. While Mattel continued to amass companies and product licenses, including the lucrative Harry Potter license agreement and a multi-year licensing deal with children's programming network Nickelodeon, the 2000s also brought serious challenges for Mattel. In 2000, the company sold off The Learning Corporation, a software company Mattel had bought for $3.5 billion in stock in 1999, in a zero•cash•upfront deal with an investment firm in order to get the failing software division off its books. The Learning Company, which had been rebranded as Mattel Interactive, was losing an estimated $1 million per day, and its acquisition by Mattel has been regarded as one of the worst purchases in American corporate history. Mattel took a $430 million after-tax loss on The Learning Company, and they saw an estimated $7 billion drop in market valuation attributable to the failed software division. The next year Mattel entered into licensing agreements with game publishers Vivendi Universal and the nowdefunct THQ to develop interactive properties based on Mattel's products, rather than making another attempt to acquire a software division. Mattel faced another formidable challenge from rival MGA Entertainment, which launched the Bratz line of dolls in 2001. By 2005, Bratz had nearly overtaken Barbie in sales, leading to a 30% decline in sales of Mattel's flagship doll worldwide, as Bratz climbed to a 40% market share. Mattel filed a lawsuit against MGA in 2004, alleging that a Mattel employee had come up with the concept of the Bratz doll before being hired away by MGA. Although the courts eventually ruled in favor of MGA after nearly a decade of litigation, the court costs weakened MGA's ability to continue the meteoric growth of the Bratz line, and today the doll line is a shadow of itself. MGA counter-filed against Mattel alleging corporate espionage, and, although the suit was denied by the US Court of Appeals, MGA has recently re-filed the suit, claiming the initial suit only lost on a technicality. While MGA seeks a billion dollars in damages from Mattel, it is unlikely the suit will succeed on its second try. The ongoing battle between the two companies is notable as one of the most heavily contested trade secret cases in American legal history. In 2007, Mattel faced a serious crisis regarding its manufacturing processes. The small magnets in many of Mattel's toys were found to cause potentially fatal internal injuries if accidentally swallowed, as they could clamp intestines together. Shortly afterwards, a separate report found that Mattel's Chinese manufacturing plants were using paint with high lead concentrations. Mattel's response to the crisis, including multiple recalls totaling over 18 million products, a website coordinating product safety information, and public apologies by then CEO Rob Eckert both on television and the corporate website2 were lauded as the new industry standard. Mattel received positive coverage for its handling of the crisis, and, in 2007, were still named as one of Top 100 Best Corporate Citizens. As of 2014, they are still ranked as one of the most ethical companies in the US3. Despite challenges and setbacks, Mattel continued to be a powerhouse toy manufacturer into the 2010s. Mattel had already enjoyed moderate success from their direct•to•DVD Barbie movies, which had earned more than $100 million since 2001. That number pales in comparison to the $470 million in box-office sales from The Lego Movie in 2014, or the $3.7 billion generated by Hasbro's Transformers movies. After consolidating the HiT acquisition, Mattel next bought MEGA Brands Inc. for $460 million in 2014 in an attempt to break into the lucrative construction toy market, where Lego reigns with a 90% market share. 2 THE WORLD’S MATTEL Since 2013, though, Mattel has experienced a reversal of fortune. A disappointing 4th quarter, the most important quarter for Mattel's highly seasonal sales, caused the company to miss earnings targets in 2013 and began a slump that would eventually see the firing of CEO Bryan Stockton on January 26, 2015, after five straight quarters of declining sales. The company also slipped from the largest toy maker in the world to the second largest, losing its crown to Lego. Now Mattel is struggling to rejuvenate its core brands and rebuild its market share in a fiercely competitive market. B. Analyse Credit Standard of Mattel: I. Financial Analysis MATTEL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) FOR THE PERIOD 2011-2015 (In millions) Assets Cash and equivalents Accounts receivable, net Inventories Prepaid expenses and other current assets Total current assets Property, plant, and equipment, net Other noncurrent assets Total Assets Liabilities and Stockholders' Equity Short-term borrowings Current portion of long-term debt Accounts payable and accrued liabilities Income taxes payable Total current liabilities Long-term debt Other noncurrent liabilities Stockholders' equity Total Liabilities and Stockholders' Equity 12/31/2013 $ $ $ $ 1,039.2 1,260.1 568.8 509.9 3,378.0 12/31/2014 $ 971.7 1,094.5 561.8 558.9 3,186.9 12/31/2015 $ 892.8 1,145.1 587.5 571.5 3,196.9 659.3 2,402.3 6,439.6 $ 737.9 2,797.2 6,722.0 $ 741.1 2,614.7 6,552.7 4.3 $ 1,015.4 27.7 1,047.4 $ 1,070.1 18.8 1,088.9 16.9 300.0 1,309.9 18.8 1,645.6 1,600.0 540.6 3,251.6 6,439.6 $ 2,100.0 584.0 2,949.1 6,722.0 $ 1,800.0 473.9 2,633.2 6,552.7 SUPPLEMENTAL BALANCE SHEET AND CASH FLOW DATA (Unaudited) (In millions, except days and percentage information) Key Balance Sheet Data: 12/31/2013 Accounts receivable, net days of sales outstanding (DSO) Total debt outstanding Total debt-to-total capital ratio 12/31/2014 54 $ 1,604.3 33.0% 12/31/2015 49 $ 2,100.0 41.6% 52 $ 2,116.9 44.6% 3 THE WORLD’S MATTEL MATTEL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) FOR THE PERIOD 2011-2015 2013 2014 $ Amt $ 6,484.9 3,006.0 % Net Sales Gross Profit Advertising and promotion expenses Other selling and administrative expenses 2015 % Net Sales 46.4% $ Amt $ 6,023.8 3,022.8 3,478.9 750.2 1,560.6 53.6% 11.6% 24.1% Operating Income Interest expense Interest (income) Other non-operating expense (income), net 1,168.1 78.5 (5.6) (3.9) Income Before Income Taxes Provision for income taxes (In millions, except per share and percentage information) Net Sales $ Cost of sales % Net Sales 50.2% $ Amt $ 5,702.6 2,896.2 3,001.0 733.2 1,614.1 49.8% 12.2% 26.8% 2,806.4 717.9 1,547.6 18.0% 1.2% -0.1% 653.7 79.3 (7.4) (5.1) 10.9% 1.3% -0.1% 540.9 85.3 (7.2) (1.1) 49.2% 12.6% 27.1% 0.0% 9.5% 1.5% -0.1% 1,099.1 195.2 16.9% 586.9 88.0 9.7% 463.9 94.5 8.1% 13.9% $ 498.9 15.0% 8.3% $ 369.4 20.4% 6.5% $ 1.46 $ 1.08 Net Income Effective Tax Rate $ $ 903.9 17.8% Net Income Per Common Share - Basic $ $ 2.61 Weighted average number of common shares Net Income Per Common Share - Diluted 343.4 $ Weighted average number of common and potential common shares $ 339.0 2.58 $ 347.5 339.2 1.45 $ 340.8 (In millions) Condensed Cash Flow Data: $ 1.08 339.7 2013 Cash flows from operating activities 50.8% 2014 698 $ 889 2015 $ 735 Cash flows (used for) investing activities (242) (709) (283) Cash flows (used for) financing activities and other (752) (248) (531) Increase (Decrease) in cash and equivalents $ (296) $ (68) $ (79) Key Ratios for Credit Analysis Mattel Inc. Liquidity Current Ratio Net Working Capital Quick Ratio Cash Flow from Operations Cash Cycle Cash Turnover Debt management & Coverage Times Interest Earned Long-Term Debt to Capital Total Liabilities to Total Assets 2013 2014 2015 3.23 2331 2.68 698 88.12 4.14 2.93 2098 2.41 889 82.63 4.42 1.94 1551 1.59 735 63.58 5.74 14.00 0.33 0.50 7.40 0.42 0.56 5.44 0.41 0.60 4 THE WORLD’S MATTEL Performance ROE Profit Margin on Sales ROA Supplemental data Days Inventory Held Day Sales Outstanding Days Payables Outstanding 28.61% 16.09% 13.23% 13.94% 8.28% 6.48% 13.94% 7.58% 5.57% 62.77 70.92 45.57 68.26 66.32 51.95 72.42 73.29 82.13 1. Market value of company Giá thị trường cổ phiếu BVPS $47.95 $41.43 $31.16 $27.76 $22.80 $19.05 $19.98 $16.00 $5.49 $6.33 $6.39 $5.88 $7.02 2006 2007 $26.92 $25.57 2008 2009 2010 2011 $9.59 $7.63 $7.64 $8.93 2012 2013 2014 $8.69 2015 Stock market value and book value tends to increase over time. In particular, the market price of the stock tends to increase with the slope. Fluctuation range of book value is negligible from 5:49 (2006) to 9:59 (2014). Fluctuation range of the stock market value at the lowest huge 16 002, the highest level is 47.946. Fluctuating market value increased many times more than the real value,5.5 times 24.93 compared with book 21.34 value in 2006 and more 18.37 than 9.6 times (highest) 16.57 15.24 14.71 in 2014. We can 13.78 13.6 12.62 12.21 observed that the market value of stocks tend to rise sharply $2.61 $1.55 $1.56 $1.05 $1.45 $1.88 $2.20 $2.50 $1.46 $1.08 compared with the real value. EPS did not 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 increase significantly, and P / E at the same time tends to increase so we can see that the expectations of investors and the market value of the company tends to rise. EPS P/E 5 THE WORLD’S MATTEL 2. Liquidity Current Ratio 4.00 3.50 3.23 2.93 3.00 2.50 2.00 2.69 2.47 1.94 1.82 1.50 1.00 0.50 0.00 2013 2014 Mattel Hasbro (In millions) Assets Cash and equivalents Accounts receivable, net Inventories Prepaid expenses and other current assets Total current assets Liabilities and Stockholders' Equity Short-term borrowings Current portion of long-term debt Accounts payable and accrued liabilities Income taxes payable Total current liabilities 2015 12/31/2013 $ 1,039.2 1,260.1 568.8 509.9 3,378.0 $ 4.3 $ 1,015.4 27.7 1,047.4 12/31/2014 $ 971.7 1,094.5 561.8 558.9 3,186.9 - $ 1,070.1 18.8 1,088.9 12/31/2015 $ 892.8 1,145.1 587.5 571.5 3,196.9 16.9 300.0 1,309.9 18.8 1,645.6 Mattel’s current ratios had the tendency to decrease throughout 3 years compare to that of Hasbro. In the first two years, the current ratios of Mattel were higher than those of Hasbro. However, in 2015 Mattel’s figure suddenly decreased by 33.8% and lower by 0.75 million compared with one of Mattel in 2014 and one of Hasbro in 2015, respectively. It is due to total current assets declined from 3.378,0 to 3.196,9 million whereas total current liabilities increased from 1.047,4 up to 1.645,6 million. The former went down which results from a decrease in Cash and equivalent and Account receivable and the latter climbed up significantly because of an increase in Accounts payable and accrued liabilities. Quick Ratio Current ratio Quick ratio  3.23 2.68 0.54 2.93 2.41 0.52 1.94 1.59 0.36 6 THE WORLD’S MATTEL 3.50 3.23 3.00 2.68 It can be seen from the chart that the difference between current ratio and quick ratio is not very big. Therefore, the ability to cover payables did not depend too much on the inventories. These two ratios decreased over 3 years but they were still higher than 1 which led to an acceptable level. 2.93 2.41 2.50 1.94 1.59 2.00 1.50 1.00 0.50 0.00 2013 2014 2015 Current ratio Quick ratio Cash flow from Operations Cash Flow from Operations Cash flow from Operations in three years is higher than those of Hasbro. These figures show that Mattel had a good sign of ability to generate cash from operations which is better as opposed to Hasbro. 1000 800 600 735 698 552 401 400 200 0 2013 2014 Mattel 2015 Hasbro Net working capital Net working capital is the dollar difference between current assets and current liabilities. It can be seen from the chart that Mattel had tendency to decrease from 2,331 million in 2013 to 1,551 million in 2015 while Hasbro had an upward trend. Nevertheless, the gap of net working capital between Mattel and Hasbro in 2015 was not very big which led to the acceptable level. Net Working Capital 3000 2500 2331 2098 2000 1500 1572 1801 1551 1117 1000 500 0 2013 2014 Mattel 2015 Hasbro 7 THE WORLD’S MATTEL Cash Cycle 140.00 122.02 100.00 121.39 117.4 120.00 88.12 82.63 80.00 63.58 60.00 40.00 20.00 0.00 2013 2014 Mattel 2015 Hasbro The cash cycle referred to the long lag time between the date that cash is received and the date that cash is paid. Cash cycle = Days Inventory Held + Days Sales Outstanding – Days Payables Outstanding. In comparison between Cash cycle of Mattel and Hasbro in 3 years, these of Mattel were smaller and had a downward trend. Overall, ability to manage working capital of the business is pretty good. 3. Debt management & Coverage Times Interest Earned 15.00 14.00 10.00 5.00 7.40 6.81 4.31 7.23 5.44 0.00 2013 2014 Mattel 2015 Times Interest Earned indicates how much interest profit ensures the payment of interest like. If the company is too weak in this area, creditors can go to put pressure on the company, and even lead to bankruptcy of the company. Hasbro 𝑇𝑖𝑚𝑒𝑠 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐸𝑎𝑟𝑛𝑒𝑑 = 𝐸𝐵𝐼𝑇 Interest Expense Times Interest Earned of Mattel over 3 years tends to be decreased, the vibration amplitude is much bigger compared with competitors. The reason is that the interest of Mattel over the years has significantly increased leading to that Times Interest Earned declined. However, this risk is limited because Earnings before tax and interest is not the only source of interest payments. Businesses can also generate other sources and can use it for payments. 8 THE WORLD’S MATTEL Long-Term Debt to Capital Long-Term Debt to Capital 0.60 0.51 0.50 0.40 0.33 0.48 0.42 0.36 0.41 0.30 0.20 0.10 0.00 2013 2014 Mattel In the period of 3 years, the ratios of Mattel were less than those of Hasbro and seemed to be more stable. The less a company’s leverage, the less the ratio were. Generally, companies with lower ratios are thought to be less risky because they have less liabilities, more equity. 2015 Hasbro Total Liabilities to Total Assets Total Liabilities to Total Assets 0.80 0.68 0.62 0.60 0.60 0.56 0.50 0.65 0.40 The total liabilities to total assets ratios of Mattel was less than those of Hasbro. This indicates that Mattel had little liabilities compared with Hasbro. Suppliers will be ensured about the ability to pay debt of company. 0.20 0.00 2013 2014 Mattel 2015 Hasbro 4. Performance Du Pont Analysis - Du Point Model Profitability on equity and total assets of the company Year 2013 2014 2015 Profit Margin on Sales 13.94% 8.28% 6.48% X Total assets turnover 1.00 0.92 0.86 ROA 13.94% 7.58% 5.57% 9 THE WORLD’S MATTEL X Financial Leverage 2.05 2.12 2.38 ROE 28.61% 16.09% 13.23% In 3 years, return on equity (ROE) had a tendency to decrease from 29% (in 2013) to 13 % (in 2015). A decrease of ROA was stronger compared to an increase of financial leverage which led to that ROE decreased. 2.5 35.00% 2.4 30.00% 2.3 25.00% 2.2 20.00% 2.1 15.00% 2 10.00% 1.9 5.00% 1.8 0.00% Financial Leverage 1.05 16.00% 14.00% 1 12.00% 0.95 10.00% 0.9 8.00% 6.00% 0.85 4.00% 0.8 0.75 2.00% 1 2 3 1 0.92 0.86 Net Profit Margin 13.94% 8.28% 6.48% ROA 13.94% 7.58% 5.57% Total assets turnover 0.00% ROA ROE We can see that total a decrease in total assets turnover and a sharp decrease in net profit margin resulting in ROE decline dramatically. The using debt in capital structure had positive effect on company’s operations: ROE was higher than ROA shows that the use of financial leverage brought income to the shareholders. Five Cs ‘ model Analyse: 1. Character : Founded in 1945, Mattel has launched a series of well-known toy brands, is well known and concern such as Barbie and Hot Wheels ... The group has also acquired other toy brands like Fisher Pleasant price and company - maker American Girl dolls. Today Mattel brand remains their pioneer, leading the toy industry by the popularity of these toys as well as Monster High, Thomas trains, other games... II. Withdrawal The company Mattel has been criticized fiercely for recalls during every week, not just once but twice to almost 20 million toys manufactured in China by this toy has the signs using of paints containing lead and create magnetic fields quite dangerous. 10 THE WORLD’S MATTEL It is clear that this company did not build the quality control process strictly and effectively enough in the supply chain to balance the incurred risks can have when hiring new China contractors for manufacturing these products. It is clear that there have been errors in the design of magnetic toys, and these errors can make the magnetic field leaks out. However, the company Mattel deserves praise for having come forward to shoulder responsibility as the role of a leading brand in the industry of toy manufacturers. Chief Executive Officer of this company has come forward to admit personal responsibility for him in this case. He publicly apologized to the public and organized quickly tightening the requirements for quality assurance for goods supplier for Mattel. The company did not try to blame the vendors, distributors or worse, blame consumers - such as Audi has done in the way that recalls the famous line of the company in the late 80 ) Mattel was quickly publicized and effective withdrawal of this service. Although there are other methods, the company has chosen to use the red banner ads prominently on the site with high traffic such as Yahoo.com to send a message to those who have purchased the affected products enjoy and guide them back to the company's website Mattel for more information about this recall. This could adversely affect its relationship with the reseller and costly additional processing costs for the company issues. Website dedicated to the recall of Mattel can say is a model of perfection. Everyone has faults of Mattel products are clearly described with thorough instructions on how to return the product at fault ¬ (including registration form and return the form of shipment of goods by means transport). This indicates that the company has a plan to deal with unexpected situations is built very well. Where is lacking of Mattel in compensation for injury to the customer? The company has proposed to supply the stock exchange equivalent value to customers allowing them to exchange products withdrawn get other good products of Mattel. And considering the inconvenience caused to our customers and the need to promote the products they reimburse the offer fails, this seems to be not enough. As long as the two aforementioned recalls reflect the whole problem, not just a small piece of it, the reputation of Mattel brand can survive. Mr. CEO executive said that this incident gave credibility to brands that the company Mattel-building exhaustively during the last 62 years is standing on the brink of danger, just before the sales season for an Ritual. 2. Capital : 120.00 100.00 100.00 100.00 100.00 80.00 60.00 50.49 43.87 40.18 40.00 20.00 0.00 2013 Tổng vốn chủ sở hữu 2014 2015 The proportion of the total equity of Mattel ranged between 50% of the total capital and tends to decrease. This is because the proportion of the company's long-term debt tends to increase over time as analyzed above. Currently with the proportion of total equity accounted for about 50% shows that the company is TỔNG NGUỒN VỐN 11 THE WORLD’S MATTEL not too dependent on external loans. 3. Capacity Direct Competitor Comparison MAT HAS JAKK Industry Market Cap: 12.20B 7.13B 128.45M 481.02M Employees: 30,000 N/A 828 966 Qtrly Rev Growth (yoy): -0.06 0 -0.01 -0.12 Revenue (ttm): 6.48B 4.08B 628.70M 628.70M Gross Margin (ttm): 0.54 0.5 0.24 0.39 EBITDA (ttm): 1.36B 648.08M -33.65M 55.58M Operating Margin (ttm): 0.18 0.11 -0.09 0.13 Net Income (ttm): 903.90M 286.20M -157.29M N/A EPS (ttm): 2.58 2.17 -7.36 1.19 P/E (ttm): 13.94 25.11 N/A 25.02 PEG (5 yr expected): 1.67 1.67 -0.16 1.66 P/S (ttm): 1.88 1.75 0.2 1.16 Based on our financial analysis of MATTEL and HASBRO, we conclude that 1) 2) 3) 4) 5) 6) MATTEL is able to generate better revenue from assets than HASBRO. MATTEL has a better ROE than HASBRO in last 3 years. Less Leverage. Net Operating Profit Margin. Good ROA Low Debt to Equity Ratio, which can be riskier for creditors Mattel has a current market capitalization of $9.02 billion, making it the second largest toy manufacturer in the world behind Lego. The stock value has been in decline since the end of 2013, where it was at a near five year high of $44.10 per share. After missing 4th quarter earnings expectations, the stock price began falling and was at $30.08 by 2014's end, as Mattel experienced nothing but bad news. The stock continued to plummet in 2015, and it hit a low of $22.28 per share, barely half of its 2013 valuation. Recently, the stock has started to edge back up as Mattel has announced new Barbie lines and marketing initiatives. The fall in stock value can largely be attributed to Mattel's declining sales and the compounding effects of shrinking gross profits from net sales. Currently, Mattel trades at $26.67 per share with a price to earnings ratio of 20.17. All three major credit rating agencies have either lowered Mattel's credit category or have given the company a negative future outlook on the basis of declining sales. Additionally, Mattel has received a strong sell recommendation throughout 2014, although recently it has been listed as a hold by a few research firms, such as Zack's. In order to preserve stock value, 12 THE WORLD’S MATTEL Mattel has been repurchasing stocks and keeping its dividends unchanged despite the sales slump. Mattel repurchased $177 million in stocks in 2014 and announced a $.38 dividend for the 4th quarter of 2014 and another $.38 dividend for the 1st quarter of 2015. The primary factor affecting Mattel's profitability is a decline in net sales. Sales dropped by 7% in 2014, despite overall growth of 4% in the toy industry. On top of the decline in net sales gross profits, net sales also declined by 380 basis points (53.6% to 49.8%) in 2014, leading to less take away from fewer sales. In its annual report, Mattel attributes two percentage points of the decrease in net sales to currency exchange rate volatility, with the remaining five points attributed to drops in sales of Barbie (down 16% from 2013), entertainment (a catch all term for non-core/Fisher•Price brands, down 20%) and Fisher•Price (down 13%). The decrease in gross profits comes primarily from the impact of acquiring MEGA Brands. Though the costs are partially offset by operational savings realized through a corporate reorganization program called Operational Excellence 3.0, MEGA Brands-related costs also increased administrative expenditures. These expenses are unlikely to continue into 2015. Finally, advertising expenses for 2014 increased from 11.6% of net sales in 2013 to 12.2% of net sales. However, since overall net sales declined, Mattel actually spent less on advertising in absolute dollars in 2014, reflecting a failed strategy to concentrate advertising spending around the holiday season at the expense of the first two quarters. The impact of both declining net sales and decreasing gross profits is that net income for 2014 was nearly cut in half from 2013, a drop of $405 million from $904 million in 2013 to $499 million in 2014. This drop is what is driving Mattel's declining stock value, and it is what caused former CEO Bryan Stockton to be terminated. While the impact to gross profitability from MEGA Brands may be temporary, the ongoing decline in net sales is the real existential threat to the company. 4. Condition: a. Overview: The global toy industry is highly competitive with low barriers to entry, and traditional toy manufacturers are seeing increasing competition from digital gaming products, digital media and products that combine traditional “analog” products with digital play. Several external factors may influence demand for traditional toys. One is the aging of society in mature markets, witnessed already by a more or less stable number of children in the EU and the US. The one-child policy and rising incomes have even led to a sharp decline in the child population in China. Not to mention that video games, smart phones, tablets and other entertainment products compete for the preference and spending of children in mature and emerging markets. b. Five forces model:1  Competitive Force 1: Rivalry among existing firms: In general, rivalry is very high due to the number of competing companies and struggle for market share. Because industry growth has already leveled off, companies must fight for a set market to survive. In addition, the market for toys is fairly concentrated because of competing companies in the industry, including Hasbro and Jakks Pacific. This forces Mattel to compete on price and strive to be the lowest cost competitor. 1 Mattel’s report, Mattel Board Report Dec. 2014 13 THE WORLD’S MATTEL The switching cost of the consumer is very low in this industry. For example, if a consumer purchases a similar item from the same store, it will not cost the buyer any more money to choose a different product. Because of this, toy companies must engage in price competition, which keeps the level of differentiation fairly low. Because there are no exit barrier regulations within the toy industry, it is not costly to leave the market. The primary substantial investments a company could possibly lose are its fixed assets such as machinery and factories, or any contracts with suppliers that may have been created.  Competitive Force 2: Threat of new entrants Within the toy industry, there are large economies of scale, specifically in the marketing segment. In order to inform buyers about upcoming products, companies must invest large quantities of capital in advertising and marketing. Designing and manufacturing toys might be fairly easy for smaller companies to do, but the actual marketing of the products is what is difficult. One last barrier that new entrants must surpass is the legal barrier. In the toy industry, this would be patented products. Many potential products, especially ones related to the movie industry, have patents that only certain companies have the rights to.  Competitive Force 3: Threat of Substitute Products In the toy industry, depending on the nature of a certain product, there may or may not be a threat of substitute products. In most cases, the threat of substitute products is relatively high. Most consumers will likely purchase whatever product is the cheapest. On the other hand, the threat of substitute products could be relatively low as in the case of technologically advanced or licensed toys. The key to a successful product is to create a toy that is so appealing to children that it cannot be substituted.  Competitive Force 4: Bargaining Power of Buyers Free playtime of children with regards to the availability of free time to experience play2. Children do not go out and play free-form play outdoors as was prevalent in the past and spend more and more time with video, electronic game, and computers. As a result, many children have lost the ability to build and create from start to finish products that are available for them to experiences, whether it is a craft model kit or art project. Two factors that determine the power of buyers include price sensitivity and relative bargaining power. Relative bargaining power is another aspect that determines the power of buyers. Unless there was a huge volume of products that were being bought, most buyers wouldn’t have much bargaining power over Mattel toys. Mattel is such a large company with many differentiated products that most consumers have a relatively low sense of power over them.  Competitive Force 5: Bargaining Power of Suppliers Since there are numerous suppliers in the toy industry, companies have a low bargaining power relative to Mattel. Mattel has the ability to choose the supplier with the lowest price. Plastic and rubber are good examples of common resources used to produce toys. They are relatively simple to produce and easily attainable, which forces the suppliers of these 2 http://thebiggamehunter.com/main-menu-bar/articles-2/articles-by-others/toy-industry-past-present-andfuture/ 14 THE WORLD’S MATTEL materials to compete heavily among themselves. This gives Mattel the opportunity to produce low cost products. c. Mattel ‘s SWOT3 Strengths  Global brand recognition  Strong, internationally diversified manufacturing capacity and quality control  Good recent track record with acquisitions  Strong financials despite recent losses Opportunities  Leverage brands with comprehensive campaigns including TV, movies, clothing and games  Seek new licenses  Innovate using new technologies  Embrace diversity in doll designs Weaknesses     Poor integration of toys and media Lack of diversity in products Over-reliance on girls’ toys5 Recent upheaval in leadership Threats  Changing consumer tastes: Rival toys, Consumer electronics.  Intense industry competition  Seasonality of sales 5. Collateral: We do not find the information and data related to this component to research. C. Conclusion: Based on above analysis we can conclude that: In term of supplier’s perspective, most analysis of Mattel’s financial health and 5Cs model analysis are not bad. The asset structure of Mattel indicates that the Debt to Total Equity is lower, meaning less liability and more owner equity. Having more equity is not good for Mattel because interest rate paid for shareholder is high. However, when the incident occurs, the ability to repay debt will be resolved prior to the creditors. In addition, thanks to Mattel’s reputation as well as market value through 10 years tends to increase; especial P/E ratio rose sharply in 2014 -2015 will ensure the solvency risk of the company. REFERENCES: - 3 Mattel’s client report Mattel’s report, Mattel Board Report Dec. 2014 http://thebiggamehunter.com/main-menu-bar/articles-2/articles-by-others/toy-industrypast-present-and-future/ Mattel’s client report 15 THE WORLD’S MATTEL - Chang, S. (2010, June 02). Hasbro files patent lawsuits against competitors. Retrieved October 13, 2010, from Market Watch: http://www.marketwatch.com/story/hasbrofiles-patent- lawsuits-against-competitors-2010-06-02-121490 Foreman, W. (2008, November 26). Workers riot at Chinese toy factory. Retrieved October 4, 2010, from breitbart.com: http://www.breitbart.com/article.php?id=D94MPOJG0 Kumar, K. (2010, September 24). Zhu Zhu maker sues Build-A-Bear in payment dispute. Retrieved October 2, 2010, from stltoday.com: http://www.stltoday.com/business/article_4589facf-114a-502b-b9974c711fc94d2d.html 16