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GuruFocus has detected 4 Warning Signs with Li & Fung Ltd \$LFUGF.
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Li & Fung Ltd (OTCPK:LFUGF)
Gross Profit
\$1,940 Mil (TTM As of Dec. 2016)

Li & Fung Ltd's gross profit for the six months ended in Dec. 2016 was \$1,019 Mil. Li & Fung Ltd's gross profit for the trailing twelve months (TTM) ended in Dec. 2016 was \$1,940 Mil.

Gross Margin is calculated as gross profit divided by its revenue. Li & Fung Ltd's gross profit for the six months ended in Dec. 2016 was \$1,019 Mil. Li & Fung Ltd's revenue for the six months ended in Dec. 2016 was \$8,690 Mil. Therefore, Li & Fung Ltd's Gross Margin for the quarter that ended in Dec. 2016 was 11.73%.

Li & Fung Ltd had a gross margin of 11.73% for the quarter that ended in Dec. 2016 => No sustainable competitive advantage

During the past 13 years, the highest Gross Margin of Li & Fung Ltd was 14.91%. The lowest was 10.48%. And the median was 11.57%.

Warning Sign:

Li & Fung Ltd gross margin has been in long term decline. The average rate of decline per year is -5.4%.

Definition

Gross Profit is the different between the sale prices and the cost of buying or producing the goods.

Li & Fung Ltd's Gross Profit for the fiscal year that ended in Dec. 2016 is calculated as

 Gross Profit (A: Dec. 2016 ) = Revenue - Cost of Goods Sold = 16760.632 - 14820.801 = 1,940

Li & Fung Ltd's Gross Profit for the quarter that ended in Dec. 2016 is calculated as

 Gross Profit (Q: Dec. 2016 ) = Revenue - Cost of Goods Sold = 8689.899 - 7670.768 = 1,019

For company reported semi-annually, GuruFocus uses latest annual data as the TTM data. Li & Fung Ltd Gross Profit for the trailing twelve months (TTM) ended in Dec. 2016 was \$1,940 Mil.

Gross Profit is the numerator in the calculation of Gross Margin:

Li & Fung Ltd's Gross Margin for the quarter that ended in Dec. 2016 is calculated as

 Gross Margin (Q: Dec. 2016 ) = Gross Profit (Q: Dec. 2016 ) / Revenue (Q: Dec. 2016 ) = (Revenue - Cost of Goods Sold) / Revenue = 1,019 / 8689.899 = 11.73 %

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

A positive Gross Profit is only the first step for a company to make a net profit. The gross profit needs to be big enough to also cover related labor, equipment, rental, marketing/advertising, research and development and a lot of other costs in selling the products.

Explanation

Warren Buffett believes that firms with excellent long term economics tend to have consistently higher margins.

Durable competitive advantage creates a high Gross Margin because of the freedom to price in excess of cost. Companies can be categorized by their Gross Margin

1. Greater than 40% = Durable competitive advantage
2. Less than 40% = Competition eroding margins
3. Less than 20% = no sustainable competitive advantage
Consistency of Gross Margin is key

Li & Fung Ltd had a gross margin of 11.73% for the quarter that ended in Dec. 2016 => No sustainable competitive advantage

Related Terms

Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

Li & Fung Ltd Annual Data

 Dec07 Dec08 Dec09 Dec10 Dec11 Dec12 Dec13 Dec14 Dec15 Dec16 Gross_Profit 1,253 1,497 1,557 2,166 2,986 2,868 2,219 2,182 2,159 1,940

Li & Fung Ltd Semi-Annual Data

 Jun12 Dec12 Jun13 Dec13 Jun14 Dec14 Jun15 Dec15 Jun16 Dec16 Gross_Profit 1,281 1,587 955 1,264 968 1,214 961 1,198 921 1,019
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