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GuruFocus has detected 5 Warning Signs with Li & Fung Ltd \$LFUGF.
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Li & Fung Ltd (OTCPK:LFUGF)
Gross Profit
\$2,159 Mil (TTM As of Jun. 2016)

Li & Fung Ltd's gross profit for the six months ended in Jun. 2016 was \$921 Mil. Li & Fung Ltd's gross profit for the trailing twelve months (TTM) ended in Jun. 2016 was \$2,159 Mil.

Gross Margin is calculated as gross profit divided by its revenue. Li & Fung Ltd's gross profit for the six months ended in Jun. 2016 was \$921 Mil. Li & Fung Ltd's revenue for the six months ended in Jun. 2016 was \$8,071 Mil. Therefore, Li & Fung Ltd's Gross Margin for the quarter that ended in Jun. 2016 was 11.41%.

Li & Fung Ltd had a gross margin of 11.41% for the quarter that ended in Jun. 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 11.52%.

Warning Sign:

Li & Fung Ltd gross margin has been in long term decline. The average rate of decline per year is -5.2%.

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. 2015 is calculated as

 Gross Profit (A: Dec. 2015 ) = Revenue - Cost of Goods Sold = 18830.835 - 16671.655 = 2,159

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

 Gross Profit (Q: Jun. 2016 ) = Revenue - Cost of Goods Sold = 8070.733 - 7150.033 = 921

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 Jun. 2016 was \$2,159 Mil.

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

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

 Gross Margin (Q: Jun. 2016 ) = Gross Profit (Q: Jun. 2016 ) / Revenue (Q: Jun. 2016 ) = (Revenue - Cost of Goods Sold) / Revenue = 921 / 8070.733 = 11.41 %

* 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 11.41% for the quarter that ended in Jun. 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

 Dec06 Dec07 Dec08 Dec09 Dec10 Dec11 Dec12 Dec13 Dec14 Dec15 Gross_Profit 943 1,253 1,497 1,557 2,166 2,986 2,868 2,219 2,182 2,159

Li & Fung Ltd Semi-Annual Data

 Dec11 Jun12 Dec12 Jun13 Dec13 Jun14 Dec14 Jun15 Dec15 Jun16 Gross_Profit 1,769 1,281 1,587 955 1,264 968 1,214 961 1,198 921
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