Instructor: Katherine Yuen
An MA Analysis of
Li Ning Company Limited
Lee Xin Chyr
Ng Yi Long
About Li Ning3
Managerial Accounting Concepts4
Cost Structure Analysis4
Cost-Volume-Profit Analysis 11
Li Ning, former Chinese gymnast and founder of Li Ning Company Limited
About Li Ning
Li Ning Company Limited is a major Chinese athletic company which is founded in 1990 by a former Chinese gymnast called Li Ning. It is currently listed as one of China’s “500 Most Valuable Brands” with a present value of 12.734 billion RMB. Their wide range of products includes sports apparels, footwear, accessories and equipment. The company has a wide distribution network mainly through outsourcing its manufacturing operations to franchises. Besides, they do have directly managed Li Ning stores. Currently, the operation of Li Ning is primarily in the Chinese market, although it has open flagship stores in Singapore and the United States of America. Goals of Li Ning
The Company’s aim is to capture larger market share in China. A large part of this market share was previously lost to its fierce competitors such as Nike and Adidas. However, with its explosive growth in sales these few years, Li Ning managed to oust Adidas to become the second most popular sporting brand in China. In 2009, Li Ning’s market share was at 14.2% while Adidas was at 13.9%. Nike remained at top position with 16.7% of market share. Currently, Li Ning is looking into building on this success by expanding operations and bringing the Li Ning brand to international icon status. This could be seen by their recent efforts to capture international market share. Due to its low cost sporting products, the business model of Li Ning is more likely to be revenue-generating instead of profit-generating. As such, in order to capture larger market share in China, Li Ning has to increase its sales volume.
Managerial Accounting (MA) Concepts
In this report, we will use managerial accounting concepts to analyze how Li Ning has been able control their cost effectively in the bid to increase revenue and thus maintaining its goal of capturing larger market share in China. The two topics which we will be focusing on are: * Cost Structure
* Cost Volume Profit Analysis
Cost Structure Analysis
Types of Fixed and Variable Expenses
Using our findings from the various financial reports of Li Ning, we have identified the fixed and variable costs for Li Ning. They are summarized in Figure 1 below.
Fixed Expense| Variable Expense|
* Depreciation & Amortization * Rents * Research and Development * Write down of inventories * Auditor remuneration * Consulting * Travelling and entertainment * Advertising (80%) * Figure 1 Director and employee benefits (80%)| * Cost of inventories * Transportation and logistic * Advertising (20%) * Director and employee benefits (20%)| Figure 3
From the graph in Figure 2, the total costs of Li Ning from 2005 to 2009 has been on an increasing trend, since both variable and fixed expenses are increasing. Variable expenses have always been much higher than the fixed expenses. In addition, variable expenses have been increasing faster than fixed expense in recent years, as evident by the increased separation between the two line graphs throughout the years. In Figure 3, the percentage increase of both fixed and variable expenses has been increasing from 2006 to 2008 with a sharp drop during 2008 to 2009. This drop is probably attributed to the global recession which caused many companies to seek cost-cutting means to consolidate their earnings. Another reason may be that of the Beijing Olympics 2008 when Li Ning...