The well-known Danish toy company Lego Group reported its first loss in 1998 since the 1930s....

The well-known Danish toy company Lego Group reported its first loss in 1998 since the 1930s. While its bright plastic bricks are famous around the globe, Lego is rapidly losing its market share to the computer and video games. The company’s President said, “The Lego Group is not in critical condition, but action is needed. We need to acknowledge that growth and innovation are not enough. We also have to be a profitable business.” Discuss the meaning of profitability with respect to President’s announcement. What other goal(s) must a business achieve? Why is the goal of profitability important to Lego’s President? How is accounting profitability measured?

Expert Solution

Profitable business means a position of company in which it not only generates profits through its operations and established market share, but also has improved revenues, balance sheet assets and has good profitability ratios. In this scenario, profitability means having higher value in the market as compared to competitors or as compared to company's past performances.

Goals that a business must focus on :

Innovation to meet the changing trends and demands of customers.
Capture the market share back by introducing offers to valued customers.
Increase profitability in all terms such as increased revenues, increase gross profit and net profit margin, etc.

Profitability is important for business beacuse it indicates whether a company can raise financing from banks or finncial institutions, attract investors to invest in business and let them grow their business.

Profitability is measured by company revenues minus expenses.

ekkarill92 answered 2 years ago

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