ESMIEU Laetitia, SAINT-LEGER Baptist, RIVAIN Octave

Louis Vuitton Moët Hennessy Class Project Part 1

LVMH
Corporate Finance
 Class project Part 1

1) LVMH Moët Hennessy Louis Vuitton operates in the luxury goods industry, covering sectors such as fashion,
wines and spirits, perfumes, cosmetics, jewelry, and selective retail. Listed on the Euronext Paris Stock Exchange,
it is a key component of the CAC 40 Index, which tracks France's largest companies. Founded in 1987 through the
merger of Louis Vuitton (established in 1854) and Moët Hennessy (formed in 1971), it has its headquarters in
Paris, France, a major luxury hub.

As a multinational corporation, LVMH operates in over 70 countries, with a strong global presence, particularly in
Asia and North America. The company serves customers worldwide through an extensive network of stores, e-
commerce platforms, and selective retail operations. It owns prestigious brands such as Louis Vuitton, Christian
Dior, Givenchy, Fendi, Sephora, Moët & Chandon, Dom Pérignon, TAG Heuer, and Bulgari.

2) Our group has chosen to analyze the finances of LVMH (Louis Vuitton Moët Hennessy), a prestigious French
luxury goods conglomerate, for several compelling reasons. LVMH's consistent growth and impressive business
model, coupled with the visionary leadership of CEO Bernard Arnault, make it an exceptional subject for study in
corporate finance.

Personally, as an aspiring professional in the fashion industry with a focus on marketing, I find LVMH's financial
structure and strategies particularly intriguing. Understanding the financial aspects of such a successful company
in my target sector will undoubtedly enhance my professional perspective.

For Octave, who aims to pursue a career in finance, LVMH represents a significant investment opportunity. By
thoroughly analyzing the company's financial evolution, he can develop more strategic and informed investment
decisions, especially given that he actively follows LVMH's stock performance.

Baptiste, with his passion for sports and experience as a participant in the 2024 Paris Olympics, is drawn to
LVMH's significant involvement in major sporting events. The company's role as a prominent sponsor of the
Olympic Games and its collaborations in the sports world, such as creating medal briefcases and featuring athletes
like Léon Marchand in Louis Vuitton campaigns, showcase its diverse influence beyond traditional luxury
markets.

LVMH's appeal extends far beyond our group, inspiring both French citizens and international audiences alike. As
a global leader in fashion and luxury, the company's consistent and impressive growth trajectory offers valuable
insights into successful business strategies and financial management.
By examining LVMH's financial structure and performance, we aim to gain a deeper understanding of how a
luxury conglomerate achieves and maintains such remarkable success in the competitive global market. This
analysis will provide us with valuable lessons in corporate finance, brand management, and strategic growth that
can be applied across various industries and career paths.
3) See Annex Sheet

4) Ratios:

2023 2022
Short term Solvency:

Current Ratio = current 43,710,000 / 39,740,000 / 31,543,000 =

assets / current liabilities 33,145,000 = 1.319 1.259

Quick ratio = (current assets (43,710,000 - (39,740,000 – 20,319,000) /

– inventory) / current liabilities 22,952,000) / 31,543,000 = 0.61
 33,145,000 = 0.626

Long term Solvency:

Total debt ratio = (total (143,694,000 - (134,646,000 – 56,604,000) /

assets – total equity) / total 62,701,000) / 134,646,000 = 0,579
assets 143,694,000 = 0.43

Long term debt ratio = long 11,227,000 / 10,379,000 / 134,646,000 =

term debt / total assets 143,694,000 = 0.078 0.077

Interest coverage = EBIT / 22,600,000 / 973,000 20,496,000 / 382,000 = 53.654

Interest expense = 23

Asset Management Measures:

Inventory turnover = cost of 26,876,000 / 24,988,000 / 20,319,000 =

goods sold / inventory 22,952,000 = 1.17 1.22

Receivables turnover = net 86,153,000 / = 79,183,000 / 422,500 = 19.69

sales / average trade 86,153,000 /
receivable = net sales / ((trade 4,493,000 = 19.17
receivables at the end of year1
+ trade receivables at the end
of year2) / 2)
Total asset turnover = net 86,153,000 / ((143,694 79,183,000 / ((135,789 +
sales / average total assets = + 135,789) / 2) = 143,694) /2) = 79,183,00 /
net sales / ((total assets at the 86,153,000 / 139,741.5 = 0.567
end of the year1 + total assets 139,741.5 = 0.616
at the end of year2) / 2)
Profitability measures:

Profit margin = net income / 15,174,000 / 14,084,000 / 79,183,000 =

sales 86,153,000 = 17.6% 17.8%
Return on assets = net 15,174,000 / 14,084,000 / 143,646,000 =
income / total assets 143,694,000 = 10.05% 9.8%
Return on equity = net 15,174,000 / 14,084,000 / 56,604,000 =
income / total equity 62,701,000 = 24.20% 24.88%
Market value measures:

P/E ratio = price per share / 834.25 / 30.34 = 27.48 622.45 / 28.05 = 22.19
earnings per share
Market-to-book ratio = 834.25 / (62,701,000 / 622.45 / (56,604,000 /
market value per share / book 502,048.40) = 503,257.34) = 622.45 / 112.47
value per share = arket value 834.25 / 124 = 6.7 = 5,53
per share / (total equity / share
issued)

5)
Short-term Solvency:

Current ratio: The current ratio improved slightly from 2022 to 2023, indicating a marginally better ability
to cover short-term liabilities with current assets. This suggests the firm is in a stable liquidity position.
Compared to industry peers like Kering, which has a current ratio around 1.5, LVMH is slightly below the peer
average but still within an acceptable range for luxury retail.

Quick Ratio: The quick ratio remained stable with a slight improvement. This shows LVMH has enough
liquid assets (excluding inventory) to cover more than half of its current liabilities.
Hermès, for example, often maintains a quick ratio near 1. This places LVMH at a disadvantage compared to some
of its luxury peers, but it is still a reasonable level.

Long-term Solvency:

Total Debt Ratio: The total debt ratio significantly decreased in 2023, indicating that the company has
reduced its overall leverage and is less reliant on debt to finance its assets. This is a positive trend for long-term
solvency.
A total debt ratio of around 0.43 is in line with or better than competitors like Kering, which has a ratio close to 0.5,
making LVMH more financially stable in comparison.

Long-term Debt Ratio: The long-term debt ratio remained relatively stable, showing that LVMH's long-
term obligations as a percentage of total assets have not increased significantly.
This ratio is favorable compared to peers like Chanel, which has a higher long-term debt ratio around 0.1,
positioning LVMH as a less leveraged firm.

Interest Coverage: The interest coverage ratio decreased significantly in 2023, suggesting that while
LVMH can still comfortably cover its interest obligations, its ability to do so has weakened compared to 2022. This
may signal higher interest costs or lower EBIT.
LVMH remains in a strong position compared to industry peers, with companies like Kering typically having an
interest coverage ratio between 15-20.

Asset Management:

Inventory Turnover: A slight decline in inventory turnover indicates LVMH is turning its inventory into
sales at a slightly slower rate in 2023 compared to 2022. This could reflect higher inventory levels or slower sales.
Compared to peers, LVMH's inventory turnover is slightly below industry averages. Hermès and Kering both tend
to maintain higher turnover ratios around 1.5, suggesting LVMH could improve in this area.

Receivables Turnover: The slight decline in receivables turnover means that LVMH is collecting its
receivables marginally slower in 2023. This could indicate either extended credit terms or slower payments from
customers.
LVMH's receivables turnover is still high compared to peers, with most luxury brands like Kering and Hermès
reporting turnover ratios closer to 15-18.

Total Asset Turnover: The increase in total asset turnover suggests LVMH has improved its efficiency in
generating sales from its assets in 2023 compared to 2022.
LVMH's total asset turnover is slightly better than Hermès (around 0.55) but below Kering (around 0.65), placing
LVMH in a competitive position.

Profitability:
Profit Margin: The profit margin slightly decreased in 2023, but LVMH still maintains a strong profitability
position.
LVMH’s profit margin is comparable to Kering (18%) but slightly lower than Hermès, which has margins around
25%. LVMH could improve its operational efficiency to increase margins.

Return on Assets: A slight improvement in ROA indicates better profitability relative to the company's
assets in 2023.
LVMH’s ROA is slightly below that of Hermès (around 12%), indicating it could increase efficiency to improve
asset utilization.

Return on Equity: A slight decrease in ROE shows LVMH generated slightly less return on its
shareholders' equity in 2023 compared to 2022.
LVMH’s ROE is very competitive, with Kering reporting around 22%, but slightly behind Hermès, which
maintains an ROE near 30%.

Market Value Measures:

P/E Ratio: The increase in P/E ratio indicates that the market is
valuing LVMH's earnings at a higher multiple in 2023, possibly reflecting
investor optimism.
LVMH’s P/E ratio is higher than Kering (around 24) but lower than
Hermès (above 35), suggesting that LVMH is valued favorably but not
overly expensive compared to its peers.

Market-to-Book Ratio: The increase in the market-to-book

ratio suggests that LVMH’s market valuation has significantly increased
relative to its book value in 2023.
LVMH’s ratio is like Kering, which has a market-to-book ratio around 6,
but still behind Hermès, which consistently trades with a ratio above 10.

6) We saw on Bloomberg that the predictions are a revenue of $92,9 billion in 2025, consequently an increase of
6.5% compared of the results of 2023. We can also observe that the expected earnings per share are also going
to increase. It will reach an all-time high in 2025 with $32.47 per share. The company can do improvement in
asset use efficiency and in operating efficiency to increase their revenue .

7) Calculate ROE Using DuPont Identity

ROE = 0.176 × 0.599 × 2.29 = 24.15%

This is consistent with the calculated ROE of 24.20% for 2023.

Comparison with Industry Peers

Let’s compare LVMH’s metrics to the luxury industry averages, using peers such as Kering and Hermès.
Profit Margin: Hermès operates at a higher margin, close to 25%, whereas Kering is at around 18%. LVMH’s profit
margin of 17.6% is comparable to Kering, but lower than Hermès, indicating that operating efficiency could be
improved.
Total Asset Turnover: Hermès typically has a Total Asset Turnover around 0.55, and Kering closer to 0.65. LVMH,
at 0.599, is performing well but could enhance asset use efficiency.
Equity Multiplier: Both Hermès and Kering have equity multipliers in the range of 2-2.5, meaning
LVMH’s 2.29 multiplier is consistent with the industry. This suggests that financial leverage is not an issue for
LVMH.

Areas for Improvement

Operating Efficiency: The profit margin of 17.6% is solid, but improving operational efficiency (e.g., reducing
costs or increasing pricing power) could bring LVMH closer to Hermès’ higher margin.
Asset Use Efficiency: While the total asset turnover of 0.599 is comparable to peers, focusing on optimizing asset
use, such as improving inventory management or driving more sales from existing assets, could boost this ratio.
Financial Leverage: LVMH’s equity multiplier is in line with the industry, so there’s no immediate need to adjust
financial leverage.
LVMH performs well compared to industry peers, but there is room for improvement in operating
efficiency and asset use efficiency to enhance profitability and maximize returns. Improving the profit margin and
better utilizing assets could push LVMH toward.

8)