Mattel Analysis

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Mattel Group Equity Valuation

Jeremy Gilbert Angela Gorczyca Michael Innerebner Erin Kunselman Andrew Mead

Mattel Valuation
TA B LE OF CONT ENTS

Executive Summary.................................................. 3 Business & Industry Analysis................................... 6 Industry Analysis .............................................................6 Five Forces Model...........................................................7 SWOT Analysis ...............................................................9 Competitive Strategy Analysis .....................................10

Accounting Analysis ................................................ 11 Accounting Analysis Steps ...........................................11 Screening Ratios ............................................................16

Ratio Analysis & Forecast Financials......................17 Financial Ratio Analysis................................................17 Cross Sectional (Benchmark) Analysis .......................20 Financial Statement Forecasting Metholdology ........27

Valuations Analysis..................................................32 Method of Comparables...............................................33 Free Cash Flow & Discounted Dividends .................34 Discounted Residual Income.......................................39 Long Run Residual Income .........................................40 Abnormal Earnings Growth........................................41

Appendix..................................................................44

2

Executive Summary

Executive Summary
MAT
Date: December, 2004

Mattel, Inc. (NYSE)
Industry: Recreational Products

Business Summary: Mattel is one of the leading toy manufacturers and sellers in the world. Producing hundreds of thousands of toys each year, Mattel has earned five billion dollars in revenue last year (2003) and 4.9 billion the previous year (2002). Some of Mattel’s well-known products include Barbie, Hot Wheels, Fisher Price and American Girl toys. Share Performance Price: (current) Volume (millions): Market Cap Dividend $18.65 3,879,200 7.7B $.45 52 Week High: 52 Week Low: Shares Outstanding Yield $20.50 $15.94 414.9670M 2.37%

Financial Snapshot (2003) Revenue Total Net Income Earnings Per Share EBITDA Long Term Debt Valuation Predictions Free Cash Flow Discounted Dividends Long Run Residual Income Residual Income Abnormal Earnings Growth

$5.0B $537.6M $1.22 $1.0B $589.1M $19.43 $19.24 $19.30 $22.33 $22.69

Liquidity Ratios Current Ratio Quick Asset Ratio Inventory Turnover A/R Turnover Working Capital Turnover Profitability Ratios Gross Profit Margin Operating Expense Net Profit Margin Asset Turnover Return on Assets Return on Equity

1.63 1.16 6.51 9.12 5.35 .49 20.22 .11 1.10 .12 .24

3

Executive Summary

A
Mattel has a 24% market cap—the largest of any toy manufacturer

s stated previously, Mattel is in the business of manufacturing and selling toys. We have discovered that the toy industry is both highly competitive and highly lucrative. There is a high rivalry factor with a low threat of new entrants, which means that there are a few main competitors that fight over the same market share. Mattel currently has a 24% market cap, which is the largest of any of the toy manufacturers. This gives Mattel a serious competitive advantage over its rivals. By being the biggest company, Mattel is able to set industry standards and lead the way in new and innovative trends, taking hold of opportunities that present themselves. Mattel also has the flexibility in manufacturing to keep up with the threats that appear within the toy industry. For example, there are few toys that Mattel is not able to make, which means virtually no smaller company will be able to exclusively produce and sell a hot product without Mattel producing a comparable toy.

Analyzing Mattel’s accounting policies led us to believe that Mattel is a fairly...
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