Last week LEGO released its annual financial results for 2017, and to some of us, it may have seemed like it was written in a foreign language. You know what it means to have a profit and loss, but to help cut through all the accounting jargon, we’ve simplified things a bit further for you. Note that we’re taking a huge amount of liberty with the complex details to keep it simple, but it should give you the right general idea.
First of all, we converted Danish krone to US Dollars using Google exchange rates, just to keep the number more digestible for most of you reading this. So if you see a three-digit number below, it runs into the millions (396 = 396 Million USD). A four-digit number in the chart means it runs into the billions (6273 = 6.273 Billion USD).
Here’s a quick explanation of all the financial terminology used in the chart above.
Now that we understand how much money came in, and how much remains at the end of the year, we can make some extremely broad and brave, and far-reaching assumptions. Unlike Apple — which has many product lines, like iPhones, MacBooks, and iPads — if we look at The LEGO Group as a “one-trick-pony” – all it ever does is sell LEGO sets made from bricks, or at least a large proportion of it. So we simplify LEGO to “selling sets” to us, and that’s it. (Granted there may be other sources of income, such as Legoland royalties from Merlin Entertainments, movie rights from WB, and so on but let’s set that aside for the sake of simplicity). One can safely assume that for a $100 set that you buy, only around $22.30 is profit to the LEGO Group as the very big picture from these results.
Just remember that this magic number is just an indication that this is really an oversimplification of things, but looking at it this way probably gives you a better understanding of the effort that goes into making a set a reality (of course, there are tons of other things not represented).
As LEGO builders and collectors, it might be easy to quickly judge actions LEGO takes like layoffs, or evaluate their business strategies, competition, or complain about pricing. But the reality is that we can’t see what really happens inside closed doors. So take a pause and ask yourself, if you were to run a company… would that level of profitability be acceptable to you? What would you do differently?
- Currency conversion was based on today’s Google DKK to USD. It’s easier for most of us to digest currency in US dollars.
- Rate Used: 1,000,000 DKK = 165370 USD. (Google)
- Financial numbers obtained from LEGO 2017 Annual Report