How Financial Ratios Reveal Brand Strength in the Luxury Segment?

Using LVMH and Kering to Understand How Financial Ratios Reveal Company Strength.

Financials

31 July, 2025

Table of contents

In the luxury industry, perception, heritage, and storytelling are essential - but numbers are the real proof of brand power. Financial ratios reveal the strength behind the image: how well a brand manages its money, how efficiently it grows, and how resilient it is during downturns. For students, marketers, finance professionals, and brand strategists, understanding these ratios is a gateway to evaluating performance beyond product design or social media buzz.

This article explores how to read and apply key financial ratios using two of the world’s top luxury groups - LVMH Moët Hennessy - Louis Vuitton and Kering Group - as examples. Both companies operate iconic brands like Louis Vuitton (Louis Vuitton Malletier), Dior, Gucci, and Saint Laurent. We’ll walk through a simplified, accessible explanation of each ratio, followed by what it reveals about the financial and strategic health of these groups.

Key Financial Indicators at a Glance

Metric LVMH (2024) Kering (2024)
Total Revenue €84,68 bn €17,19 bn
Gross Profit €56,76 bn €12,68 bn
Operating Income €18,90 bn €2,31 bn
Net Income €12,55 bn €1,23 bn
EPS (Earnings/Share) €25,13 €9,24
Cost of Sales €27,92 bn €4,51 bn
Inventory €23,67 bn €3,99 bn
Accounts Receivable €4,86 bn €1,00 bn
Current Assets €47,47 bn €10,62 bn
Total Assets €149,19 bn €43,34 bn
Current Liabilities €33,69 bn €9,59 bn
Equity €69,28 bn €15,73 bn

Source: 2024 annual reports of respective companies

1. Profitability: How Much a Brand Really Keeps

What it is: Profitability tells us how much money a company actually keeps after it pays for the cost of producing and selling its goods. High profitability reflects a brand’s ability to command premium pricing, manage costs, and generate returns that justify the luxury positioning. For luxury businesses like LVMH Moët Hennessy - Louis Vuitton and Kering Group, profitability is not just about making money - it’s about proving the strength and desirability of the brand.

Gross Margin

Definition: Gross margin measures how much money is left from revenue after subtracting the direct cost of producing the goods sold (known as cost of sales). It tells us how efficiently a brand turns raw materials and production into profitable products.

Formula:

Gross Margin = (Revenue - Cost of Sales) / Revenue

Calculation:

What it means:
Kering Group has a higher gross margin than LVMH Moët Hennessy - Louis Vuitton, which means it spends less on production for every euro it earns. This is often due to Kering’s focus on soft luxury (like fashion and leather goods), which tend to have higher margins compared to diversified portfolios that include wines, perfumes, or retail chains like Sephora. However, LVMH’s margin is still very strong, reflecting the high value and pricing power of its core brands like Louis Vuitton (Louis Vuitton Malletier) and Dior.

Operating Margin

Definition: Operating margin tells us how much profit the company keeps from its revenue after covering all operational costs, such as marketing, logistics, employee salaries, and administration.

Formula:

Operating Margin = Operating Income / Revenue

Calculation:

What it means:
LVMH Moët Hennessy - Louis Vuitton is more efficient at turning its sales into operating profit. This shows that despite its size and the complexity of managing multiple brands and business segments, it controls its costs well. Kering Group’s lower margin may reflect increased spending to reposition Gucci and rebuild momentum across brands like Balenciaga or Bottega Veneta.

Net Profit

Definition: Net profit tells us how much of the revenue actually becomes the company’s final profit, after all expenses - including taxes, interest, and one-time costs - have been paid. It’s the ultimate bottom line.

Formula:

Net Profit = Net Income / Revenue

Calculation:

What it means:
LVMH Moët Hennessy - Louis Vuitton earns nearly €0,15 in profit for every €1 of sales, while Kering Group earns just over €0,07. This highlights LVMH’s superior ability to generate consistent profits even after accounting for all costs. It reflects stronger performance at the brand level and better financial discipline overall.

2. Return Ratios: How Efficiently Capital Is Used

What it is: Return ratios show how efficiently a company uses its capital - whether it’s money from shareholders (equity), borrowed funds (debt), or total assets. In other words, they reveal how well a brand turns its investments into profits. Strong return ratios are signs of financial discipline, strategic focus, and brand value.

Return on Equity (ROE)

Definition: ROE tells us how much profit a company generates for every euro of shareholder equity. It is often used by investors to gauge how effectively their capital is being used.

Formula:

ROE = Net Income / Shareholder Equity

Calculation:

What it means:
LVMH Moët Hennessy - Louis Vuitton generates more than double the return on equity compared to Kering Group. This means LVMH is better at rewarding its shareholders with profits. The difference highlights superior management of equity capital and stronger brand monetisation in the case of LVMH.

Return on Assets (ROA)

Definition: ROA shows how efficiently a company uses all of its assets - factories, stores, inventory, and more - to generate profit. It provides a broad sense of capital effectiveness.

Formula:

ROA = Net Income / Total Assets

Calculation:

What it means:
LVMH Moët Hennessy - Louis Vuitton is far more efficient in using its total assets to generate earnings. Despite being a larger and more asset-heavy group, it delivers nearly three times more profit per euro of assets compared to Kering Group.

3. Debt & Liquidity: Can the Brand Weather Uncertainty?

What it is: Debt and liquidity ratios help assess a brand’s financial health in times of crisis. They answer two key questions: how reliant is the company on debt, and how quickly can it meet its short-term obligations?

Debt-to-Equity Ratio

Definition: This ratio shows how much debt a company uses to finance its operations compared to shareholder equity. A lower value typically indicates less financial risk.

Formula:

Debt-to-Equity = Current Liabilities / Shareholder Equity

Calculation:

What it means:
Both companies maintain conservative debt levels, but LVMH Moët Hennessy - Louis Vuitton is slightly less reliant on debt. This gives it more flexibility in downturns or periods of investment.

Current Ratio

Definition: The current ratio measures how well a company can pay its short-term debts with its short-term assets. A ratio above 1 means it can cover its bills.

Formula:

Current Ratio = Current Assets / Current Liabilities

Calculation:

What it means:
LVMH Moët Hennessy - Louis Vuitton has a stronger liquidity cushion, meaning it’s better prepared to meet short-term financial obligations without stress. Kering Group's ratio is still healthy, but closer to the threshold.

4. Efficiency: Are Resources Used Productively?

What it is: Efficiency ratios show how well a company uses its resources to generate revenue, manage stock, and collect cash. In the luxury sector - where products are not fast-moving like in mass retail - strong efficiency doesn't always mean fast turnover, but rather careful control of valuable inventory and smooth cash flow operations.

Asset Turnover

Definition: Asset turnover measures how much revenue is generated for every euro of total assets. It reflects how efficiently the company uses its buildings, equipment, and intellectual property to generate sales.

Formula:

Asset Turnover = Revenue / Total Assets

Calculation:

What it means:
LVMH Moët Hennessy - Louis Vuitton is able to extract more revenue per euro of assets. That suggests its portfolio of boutiques, logistics, and brand assets are being used more effectively to generate sales. Kering Group’s lower turnover could reflect slower product cycles or underutilised assets in certain segments.

Inventory Turnover

Definition: Inventory turnover shows how many times a company sells and replaces its inventory over a year. In luxury, lower turnover is typical due to slower production cycles and high product value.

Formula:

Inventory Turnover = Cost of Sales / Inventory

Calculation:

What it means: While luxury brands naturally turn over inventory more slowly, LVMH Moët Hennessy - Louis Vuitton still maintains slightly higher efficiency than Kering Group in managing stock. This may reflect better forecasting, more streamlined product cycles, or superior supply chain integration. Kering’s inventory moves at a solid pace, but the gap suggests LVMH is converting goods into sales slightly faster.

Receivables Turnover

Definition: This ratio measures how quickly a company collects payments from customers. A higher value means strong credit control and healthy cash flow.

Formula:

Receivables Turnover = Revenue / Accounts Receivable

Calculation:

What it means: Both companies exhibit excellent receivables turnover, collecting payments rapidly and ensuring strong operating cash flow. The near-identical values indicate highly efficient credit and collection processes at both LVMH Moët Hennessy - Louis Vuitton and Kering Group - crucial in wholesale and multi-brand retail environments where liquidity matters.

5. Growth: Are They Expanding Sustainably?

What it is: Growth ratios measure how quickly a company is expanding its revenue and earnings over time. Sustainable growth is a key indicator of brand strength, market demand, and innovation.

Revenue Growth (5-Year CAGR)

Definition: CAGR (Compound Annual Growth Rate) shows the average yearly increase in revenue over a five-year period.

Calculation:

What it means: LVMH Moët Hennessy - Louis Vuitton has expanded its revenue at an impressive and consistent pace over five years, reflecting strategic brand management and diversified global exposure. Kering Group, in contrast, has grown more slowly, which may be attributed to brand-level challenges - particularly at Gucci - and a narrower category mix. This lower CAGR indicates more modest top-line momentum over the medium term.

EPS Growth (5-Year CAGR)

Definition: EPS (Earnings Per Share) growth indicates how much a company’s profitability per share has increased over five years. It reflects both revenue gains and cost efficiency.

Calculation:

What it means: LVMH Moët Hennessy - Louis Vuitton's double-digit EPS growth confirms its ability to grow profits sustainably and deliver consistent value to shareholders. Kering Group, however, experienced a significant EPS decline over five years. This drop is linked to lower profitability and ongoing brand repositioning - especially at Gucci. The negative CAGR suggests a phase of transformation and financial recalibration rather than immediate growth.

Conclusion: What the Ratios Reveal

The comparative analysis between LVMH Moët Hennessy - Louis Vuitton and Kering Group reveals a clear difference in financial strength and brand performance across all key dimensions:

Ratio Group What It Shows LVMH Kering
Profitability Ability to convert revenue into profit Gross Margin: 67,0 % Gross Margin: 73,7 %
Operating Margin: 22,3 % Operating Margin: 13,4 %
Net Margin: 14,8 % Net Margin: 7,1 %
Returns Efficiency in using equity/assets ROE: 18,1 % ROE: 7,8 %
ROA: 8,4 % ROA: 2,8 %
Liquidity & Debt Capacity to meet obligations, manage debt Current Ratio: 1,41× Current Ratio: 1,11×
Debt/Equity: 0,49× Debt/Equity: 0,61×
Efficiency Use of inventory, assets, and cash Inventory: 1,18× Inventory: 1,13×
Receivables: 17,44× Receivables: 17,14×
Asset Turnover: 0,57× Asset Turnover: 0,40×
Growth Expansion in revenue and earnings Revenue CAGR: 9,55 % Revenue CAGR: 1,60 %
EPS CAGR: 12,01 % EPS CAGR: −12,87 %

Key Takeaway: LVMH Moët Hennessy - Louis Vuitton demonstrates superior performance across nearly every financial dimension: consistent profitability, high return on capital, efficient operations, and strong, sustainable growth. Kering Group, while still healthy in terms of liquidity and brand margin, is currently in a recalibration phase, with slower top-line growth and declining profitability per share.

Financial ratios, when broken down clearly, reveal more than financial discipline - they expose how strongly a luxury brand is positioned to survive, scale, and lead. Whether you're a student learning finance, a marketer exploring brand power, or an investor reviewing performance, these numbers decode the luxury behind the label.