Amrita School of Business

EMBA Program
February 2014

Group Financial Statement Analysis Project

Mattel Inc and Hasbro Inc

Group 4:

Fridy Rose

Gururaj Nayak

Ruseena Salim

Sushobhan Das
 I. Business Description

Mattel Inc. is an American toy manufacturing company founded in 1945 by Harold "Matt"

Matson and Elliot Handler. It is headquartered in El Segundo, California. They are the

manufacturers of popular brands like Fisher-Price, Barbie dolls, Monster High dolls, Hot Wheels

and Matchbox toys, Masters of the Universe, American Girl dolls, WWE Toys, and early-1980s

video game systems. They are the largest manufacturer of toys in the United States.

Mattel has the largest share of the market. (See Table 1) The major competitors of Mattel Inc. are

Hasbro Inc. and JAKKS Pacific (JAKK). Hasbro is the manufacturer of major toy and game

brands such as Monopoly, Mr. Potato Head and Transformers. Mattel and Hasbro have different

core segments. Hasbro makes a large of portion of revenue from board games like Clue,

Monopoly and Scrabble; whereas Mattel’s core business is dolls (Barbie). But, the two

companies compete end-to-end over certain segments, as Hasbro's Playskool goes after the same

younger audience as Mattel's Fischer-Price division. JAKKS Pacific (JAKK) is a smaller toy

manufacturing company, with licensing deals with Nickelodeon's Blue Clues and Disney's

Hannah Montana. However, JAKKS Pacific is considerably smaller than Mattel by market

capitalization.

Mattel had also found competition within its segmented markets. The smaller firms with

specialized products are competing with several of Mattel’s key brands. Ex. The Da Brat doll

line has become a major competitor against Mattel’s Barbie. Also companies like

Marvel Enterprises, who specialize in creating various comic book products, have become

another challenger. One other form of competition has come from the largest retailer Wal-Mart,
which because of its diversity has hurt and even closed Mattel-owned businesses such as Toys

R’Us and FAO.

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

Table 1 (Source: http://in.finance.yahoo.com/)

HAS = Hasbro Inc.

JAKK = JAKKS Pacific, Inc.

Industry = Toys & Games

The diversity of products within Mattel gives them the means to control the majority of the toy

market. Another factor that has helped Mattel improve their growth and market share is the
recent interest in several key characters from big movie blockbusters; such as Spiderman, Harry

Potter, Superman, and Disney’s Cars.

In addition to the threat from video games, profit margins at Mattel are being squeezed by

macro-economic factors largely out of their control, including pressure from retailers and rising

input and distribution costs.

II. Trend Analysis

Mattel experienced revenue growth during the last decade (from year 2003 to 2012) with a slight

decline in year 2008 and a major decline in year 2009 (about 8% as compared to previous year)

but revenue started to grow again in following years and it regained the lost ground in 2011.

Mattel’s revenue grew from $4.96 billion in year 2003 to $6.42 billion in year 2012 and revenue

growth was pretty much smooth over the years except for years 2008 & 2009 due to Financial

Crisis of 2008.

Hasbro Inc. revenue grew from $3.14 billion in year 2003 to $4.09 billion in year 2012. This is

about 30.28% revenue growth over a decade and is slightly better as compared to Mattel Inc.’s

29.45% growth. Hasbro saw very slight revenue decline in year 2004, 2010 and 2012 as

compared to previous year. In 2007, the movie named “Transformers” was released which was

based on Hasbro’s Transformers along with Hasbro’s toy-line for the film which resulted a

significant spike in Revenue and profit for that year and contributed to its performance during

Financial Crisis of 2008.

Hasbro’s Net Income grew from $157 million in year 2003 to $336 million in year 2012. Except

for years 2008, 2011 and 2012, Hasbro’s Net Income grew in other year of the last decade.

Mattel’s Net Income grew from $537 million in year 2003 to $776 million in year 2012. Its Net
Income declined in year 2005 and 2008; it was a major decline in year 2008. Except these two

years, Mattel pretty much consistently gave a Net Income which is about 10% or more of its

Total Revenue. Hasbro’s Net Income varied from 5% to about 10% of its Total Revenue with an

average value of about 7.8%.

Mattel and Hasbro occupy top two spots, in terms of revenue, in U.S. Toy Industry as well as

world-wide Toy Industry. According to available estimates, Mattel & Hasbro accounts for 60%

of the U.S. Toy Industry which is reported to be of worth $20 billion in 2013.

When the 2008 economic crisis hit, Mattel and Hasbro took on more risk of cutting prices when

the stock didn't sell -- something retailers like Target, Wal-Mart, etc. weren't willing to do. With

this strategy, both Mattel and Hasbro were able to protect themselves from onslaught of

downturn.

2012 was a particularly challenging year for Hasbro -- when it saw a 4.5 percent, year-over-year

drop in its revenues. And with the recession having had a detrimental impact on the company,

Hasbro has been unable to bring its sales numbers much above where they were at the end of

2009.

Toy & Games market large and diverse. Demand is driven by three key factors – (1) Holiday

Season Sale, (2) Licensing movie characters for toy manufacturing, and (3) Television

advertising. TV Ad is very powerful on children who directly influence spending on toys and

thus major driving force on demand. Hasbro spent about 10% of net revenue on advertising in

2012 whereas Mattel spent around 11% of its net sales over the past few years on advertising and

marketing.
While the concept of "boys" and "girls" toys might seem outdated - the industry nonetheless

segments itself this way. Because of this focus on boys, Hasbro depends on "hit-driven" cycle --

maximizing gains when movies for franchises like "Transformers" or "Star Wars" come out, and

hunkering down and riding that profitability during years without such movies. Whenever there

is a relative lack of movies in a particular year, this strategy resulted in sales slump. Mattel,

however, continues to focus on its core products ‘Barbie’, American Girl and Monster High, etc.

and their extensions such as Barbie Dreamhouse, etc. Maturity of U.S. Market has led Mattel to

look at some segments of the population a “little more deliberately”. Mattel is targeting

millennial moms for infant brand “Fisher-Price” whereas Hispanic moms with the “Toy Feliz”

campaign.

Increasing use of sophisticated technology in toys is the on-going trend and Smartphone & tablet

along with their gaming apps captured imagination of older kids more than a doll or action

figure. Both the companies are focusing on active-play games, especially those for girls.

Both Mattel and Hasbro recognize that content around toys is more important than ever. Hasbro

has been turning its toys, Transformers and G.I. Joe, into mammoth movie franchises. Mattel, on

the other hand, has been focused on more direct-to-market entertainment, like its 26 Barbie DVD

titles, and Monster High on TV and the web.

Private Labels like MGA Entertainment is able give tough competition and with its toy Bratz,

MGA managed to bring Barbie’s 90% market share down to 60% in 2006. Online space is

making it easier for smaller manufacturer to enter the market and is eating into Mattel-Hasbro

duopoly. There is the over-looming threat of video-game industry and when Nintendo Wii

launched in Holiday season of 2006, sales of toys went from flat to down 2% to 3%. In the 1980s
and 1990s, toymakers could push shows on TV that was designed to simply sell toys. Nowadays,

channels like Nickelodeon and Disney are creating their own shows and licensing the toys. The

strategy that worked [for Mattel and Hasbro] in the past doesn't work anymore.

Both Mattel and Hasbro are looking good for the future as they expand their presences globally.

Hasbro's strong franchises such as Transformers and Star Wars and its tie up with Disney are

positives. On the other hand, Mattel looks to take its American Girl brand, which accounts for

11% of its profit, global. As Mattel takes its brands to more countries, investors can expect more

growth.

Consumers tend to gamble or buy toys and games only when they feel they have enough

disposable income to afford such luxury goods. Rising prices, a struggling U.S. market, and

other similar factors limited Americans' disposable income in some years of last decade which

impacted revenue growth.

Total Revenue - Mattel vs Hasbro

6500
Total Revenue ($ Millions) 

6420.881
5500 4960.1

4500 4088.983

3500 3138.657

2500
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
HASBRO INC MATTEL INC Year 

Figure #1: Total Revenue – Mattel vs Hasbro

 Sales growth - Mattel vs Hasbro
1.25
Sales Growth (year over year)

1.2
1.15
1.1
1.05
1
0.95
0.9
0.85
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
HASBRO INC MATTEL INC Year 

Figure #2: Sales Growth (year over year) – Mattel vs Hasbro

Net Income / Sales - Mattel vs Hasbro

0.120

0.100
Net Income / Sales 

0.080

0.060

0.040
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
HASBRO… MATTEL… Year 

Figure #3: Net Income / Sales – Mattel vs Hasbro

III. Ratio Analysis

In order to analyze the financial statements of HASBRO and its competitor MATTEL we

calculated a number of profitability, liquidity & solvency Ratios for the last 5 years. Appendix 2

shows all the computed ratios for these 2 companies.

Return on Equity
Return on Equity has been stable for HASBRO INC for the period 2008 to 2012 with the highest

being 25.41% in 2011 and lowest being 22.10% in 2008. Whereas MATTEL INC started off

with comparatively lower ROE in 2008 but it constantly increased in the coming years, baring

2012 where it slightly decreased. In the recent 3 years the Return on Equity for MATTEL has

been higher than that of HASBRO.

We use the Basic DuPont model analysis to split the Return on Equity and analyze in greater

detail.

Basic DuPont model analysis

As per DuPont analysis, the Return on Equity can be split into following component:

Return on Equity = Return on Assets x Total Leverage

= (Net Profit Margin x Total Asset turnover) x Total Leverage

Similar to its ROE, HASBRO's net profit Margin has also varied for a small range with least

being 7.63% in 2008 and highest being 9.94% in 2010, whereas in case of MATTEL, the Profit

Margin constantly increased from 2008 to 2011 and had a slight decrease in 2012. Both the

companies’ showed a similar trend in both Return on Equity and net profit Margin.

IN 2008 HASBRO’s net profit Margin was more than MATTEL. But MATTEL gradually

increased the profit Margin where as HASBRO continued to operate in a relatively lower profit

margin in the recent years.

Asset Turnover ratio for HASBRO was 1.26% in 2008 and it showed a decreasing trend and was

0.97% in 2012 which means in recent times HASBRO is generating less revenue than it used to

do in 2008 from assets . We can see a similar trend in the Asset Turnover ratio for MATTEL
which had the highest Asset Turnover ratio in 2008 at 1.25% and kept on decreasing year on year

and was at 1.05% in 2012. But MATTEL's Asset Turnover ratio was marginally better than

HASBRO in recent years. Which means MATTEL is able to use its assets more effectively than

HASBRO. This can be seen in the computed Return on Assets ratio as well. The Return on

Assets ratio for HASBRO was 9.58% in 2008 and was relatively stable till 2011 and in 2013 it

decreased to 7.95%, where as MATTEL’s Return on Assets ratio has been near 13% in the last 3

years.

The Leverage of HASBRO has been slightly higher than that of MATTEL in the last 5 years.

HASBRO's Leverage was 2.31 in 2008 and it increased steadily over the years and was 2.89 in

2012, whereas MATTEL’s Leverage was 2.14 in 2008, it went down to 1.98 in 2010 but was

again 2.15 in 2012. This means that MATTEL’s Debt is relatively lower compared to HASBRO

which could be a point to attract investors.

Net Operating Profit Margin is the ratio which clearly shows how a company is doing in terms of

pure operations.

We can see that in the recent years MATTEL has been more efficient than HASBRO in terms of

Net Operating Profit Margin, which means in core operations MATTEL has higher profits than

HASBRO.

HASBRO's Net Operating Profit Margin was 8.59% in 2008 and increased in next couple of

years to 11.18% in 2010. It again fell in next 2 years and was at 9.44% in 2012. On the other

hand MATTEL’s Net Operating Profit Margin increased considerably in the last 5 years. It was

7.25% in 2008 and increased to 13.15% in 2012.

Return on Equity(ROE) v/s Return on Net Operating Assets(RNOA)

While ROE is a good gauge for investors on how well their funds are utilized to generate more

profit, RNOA is a good internal management ratio which indicates how well the operating assets

are generating revenue.

The computation of ROE includes the deduction of all liabilities and preferred dividends from all

assets while the computation of RNOA does not include this.

ROE can be split and can be expressed in terms of RNOA as follows:

ROE = RNOA + Operating Spread X Financial Leverage.

From the computed ROE and RNOA ratios we can see that HASBRO’s RNOA was 13.04% in

2008 and it came down to 9.98% in 2012. Whereas MATTEL’s RNOA was very low (12.68%)

in 2008 but it increased significantly to 17.45% in the next year and is around 17% since then.

Also we can see high that HASBRO’s RNOA is highly inconsistent compared to MATTEL's in

the recent years.

Analysis of Turnover Ratios:

The Net Operating Asset Turnover for both HASBRO and MATTEL has shown similar trend in

the last 5 years. HASBRO's Net Operating Asset Turnover was 2.23 in 2008 and decreased to

1.72 in 2012 where as MATTEL had a Net Operating Asset Turnover of 2.38 in 2008 and 1.83

in 2012.

Debtor Turnover for both the companies was 6.35 in 2008. HASBRO's Debtor Turnover

decreased to 3.96 in 2012 where as MATTEL was able to maintain a better credit policy, its

Debtor Turnover was relatively constant and was 5.19 in 2012.

Inventory Turnover has been around 6 for both the companies in last 5 years. Comparing the

ratio we can see that it is slightly higher for MATTEL which means MATTEL is able to manage

inventories slightly better than HASBRO.

Operating Cycle, which is a measure time taken for investment to be converted to cash profit is

slightly better for MATTEL compared to HASBRO. For HASBRO it was 119.45 days in 2008

and it increased to 152.04 days in 2012. Whereas MATTEL's Operating Cycle was 110.28 days

in 2008 and increased to 129.38 days in 2012 but still it is better than HASBRO.

Liquidity and Long Term solvency:

The Current Ratio for HASBRO is slightly more than MATTEL in recent years(except 2011).

This means HASBRO has more current asset per Dollar compared to MATTEL, which means it

can pay off the current liabilities easily than MATTEL. The Quick Ratio also shows similar trend

as of Current Ratio which means incase of insolvency, HASBRO has more liquid assets than

MATTEL.

HASBRO has very high Debt to Equity Ratio compared to MATTEL which means HASBRO is

aggressive in borrowing and could be riskier than MATTEL for creditors. The Interest Coverage

of HASBRO has been less than MATTEL for last 4 years which means the more HASBRO is

more burdened by debt expense and MATTEL can easily pay off interest expenses than

HASBRO.

IV. Conclusion
Based on our financial analysis of MATTEL and HASBRO, we recommend investing in

MATTEL than HASBRO for the following reasons

1) MATTEL is able to generate better revenue from assets than HASBRO.

2) MATTEL has a better ROE than HASBRO in last 3 years.

3) Less Leverage.

4) Net Operating Profit Margin.

5) Good RNOA

6) Low Debt to Equity Ratio, which can be riskier for creditors

 HASBRO INC Dec 31, 2008 Dec 31, 2009 Dec 31, 2010 Dec 31, 2011 Dec 31, 2012
Return on Equity* 22.10 25.12 24.78 25.41 22.98

Basic Dupont Model Analysis

Return on Assets* 9.58 10.61 9.96 9.37 7.95
Profit Margin* 7.63 9.22 9.94 8.99 8.22
Asset Turnover 1.26 1.15 1.00 1.04 0.97
Leverage – Measure 1 2.31 2.37 2.49 2.71 2.89
Net Operating Profit Margin* 8.59 10.26 11.18 10.70 9.44

ROE v/s RNOA

Return on Equity* 22.10 25.12 24.78 25.41 22.98
Return on Net Operating Assets* 18.73 22.08 21.15 19.81 16.60
Return on Net Operating*
Assets(Adjusted) 13.04 14.76 13.22 11.87 9.93

Liquidity Ratios
Current Ratio 2.14 2.51 3.09 2.39 2.61
Quick Ratio 1.77 2.25 2.58 2.04 2.28

Long-term solvency Ratios

Debt to Equity Ratio 0.52 0.72 0.87 1.12 1.08
Interest Coverage 10.36 9.72 7.18 6.63 6.49

Turnover ratios
Net Operating Asset Turnover 2.23 2.16 1.88 1.92 1.72
Debtor Turnover 6.35 4.93 4.00 4.29 3.96
Debt Collection Period** 56.69 73.03 89.95 83.83 90.88
Inventory Turnover 5.74 6.22 6.52 6.01 5.89
Inventory Holding Period** 62.76 57.90 55.22 59.92 61.15
Operating Cycle** 119.45 130.93 145.18 143.74 152.04

* in Percentage
** in days
 MATTEL INC Dec 31, 2008 Dec 31, 2009 Dec 31, 2010 Dec 31, 2011 Dec 31, 2012
Return on Equity* 17.16 22.75 26.55 29.34 27.35

Basic Dupont Model Analysis

Return on Assets* 8.01 11.18 13.43 13.86 12.73
Profit Margin* 6.41 9.74 11.69 12.26 12.09
Asset Turnover 1.25 1.15 1.15 1.13 1.05
Leverage – Measure 1 2.14 2.03 1.98 2.12 2.15
Net Operating Profit Margin* 7.25 10.14 12.88 13.49 13.15

ROE v/s RNOA

Return on Equity* 17.16 22.75 26.55 29.34 27.35
Return on Net Operating Assets* 17.39 23.29 25.15 24.51 23.83
Return on Net Operating*
Assets(Adjusted) 12.68 17.45 18.80 17.34 16.57

Liquidity Ratios
Current Ratio 1.89 2.41 2.39 3.31 2.07
Quick Ratio 1.51 2.07 2.05 2.85 1.80

Long-term solvency Ratios

Debt to Equity Ratio 0.43 0.30 0.46 0.60 0.49
Interest Coverage 7.56 11.06 14.29 14.18 13.46

Turnover ratios
Net Operating Asset Turnover 2.38 2.20 2.03 1.88 1.83
Debtor Turnover 6.35 6.69 6.18 5.24 5.19
Debt Collection Period** 56.72 53.79 58.26 68.74 69.34
Inventory Turnover 6.72 6.09 6.71 6.25 6.00
Inventory Holding Period** 53.56 59.08 53.62 57.57 60.04
Operating Cycle** 110.28 112.87 111.88 126.31 129.38

* in Percentage
** in days