Nike – Financial Ratio AnalysisEssay title: Nike – Financial Ratio AnalysisNike, Inc. Financial Ratio AnalysisIn assessing the significance of various financial data, experts engage in financial analysis, the process of determining and evaluating financial ratios. A ratio is a relationship that indicates something about a companys activities, such as the ratio between the companys current assets and current liabilities or between its accounts receivable and its annual sales. The basic source for these ratios is the companys financial statements that contain figures on assets, liabilities, profits, and losses. Ratios are only meaningful when compared with other financial information. Since compared with industry data, ratios help an individual understand a companys performance relative to that of competitors, and used to trace performance over time (Venture Line, 2005). The following analysis is for Nike, Inc.
Nike, Inc. is engaged in the design, development and worldwide marketing of footwear, apparel, equipment and accessory products. The Company sells its products to retail accounts and through a mix of independent distributors, licensees and subsidiaries in over 120 countries around the world. Nikes athletic footwear products are designed primarily for specific athletic use, although some of its products are worn for casual or leisure purposes. The Company creates designs for men, women and children. Running, basketball, childrens, cross-training and womens shoes are the Companys top-selling product categories. Nike also markets shoes designed for outdoor activities, tennis, golf, soccer, baseball, football, bicycling, volleyball, wrestling, cheerleading, aquatic activities, hiking and other athletic and recreational uses (Yahoo Finance, 2005).
Financial analysis can reveal much about a company and its operations. However, there are a few points to keep in mind about ratios. First, a ratio is a “flag” indicating areas of strength or weakness. One or even several ratios might be misleading, but when combined with other knowledge of a companys management and economic circumstances, financial analysis can tell much about a corporation. Second, there is no single correct value for a ratio. Values of a particular ratio that are too high, too low, or just right depends on the perspective of the analyst, and on the companys competitive strategy.
In trend analysis, financial ratios are compared over time, typically years. Year-to-year comparisons can highlight trends and point out a need for action. Trend analysis works best with five years of ratios. The following is a five-year trend table for Nike, Inc.
Five-Year Trend Table of Financial RatiosAs Provided by Mergent OnlineRatioIndustry AvgReturn on Equity (%)19.7818.5517.4116.8818.4713.70Return on Assets (%)11.9811.0210.3710.137.90Return on Investment215.27162.30168.59223.41203.8011.50Gross Margin0.04EBITDA of Revenue (%)14.7014.1013.5912.9413.44Operating Margin (%)12.6511.6510.7910.6910.9512.23Pre-Tax Margin11.8310.5010.2810.229.40Net Profit Margin (%)6.10Effective Tax Rate (%)34.7934.1034.3136.0037.0031.90Quick Ratio1.50Current Ratio2.50Total Debt to Equity0.17Long Term Debt to Assets0.13Interest Coverage59.0027.1822.3716.7021.4316.00(Industry averages not available from Mergent. Collected from Kiplinger and Reuters.)Financial ratios are meaningful only when compared with some standard, such as an industry trend, ratio trend, a trend for the specific company analyzed, or a stated management objective. For this reason, a description of each ratio follows.
It should be noted that there is a lot of subjectivity there, as the market requires a large market share.
Based on a variety of factors, financial ratios are highly valued in our marketplace. They have an extremely high level of value as a source of feedback, understanding, confidence in the companies, and more importantly, as the basis for assessing the quality and value of financial services, services to clients, and other financial products. In other words, many factors from a product perspective should be incorporated in your business plan to ensure that your financial ratio is as relevant as possible, and that a fair market value for all of your service can be determined and calculated.
What this is used to show is that there are many factors within an industry that have become part of our business. As some of you know, the financial ratio you use is used as a good basis for financial statements. Because the quality of your information and the quality of your services in the marketplace has become more important than the quality of a whole company, we have changed our information disclosure procedures, which are designed to better inform companies about important factors that are outside of their traditional business focus.
In light of these factors, the following information for these ratios, and the industry trends listed below, are presented for your reference:
Productivity Index
This is an item based on average of all business productivity. The index reflects the average weekly gross productivity (or weekly gross time equivalent) of workers, all employees, and any contractors and subcontractors or employee groups they represent. As discussed above, this metric is particularly important in determining which services provide you with the most value.
As you can see, the average weekly gross productivity is based on 10,000 to 16,000 hours of work performed on an average day. So there is not a lot of time for productivity per hour, as the average hourly gross productivity of work is not only for an average person. Instead, average weekly gross productivity is based on what the average person earns. However, for a company that employs up to 40 people, this is where performance will be measured. This is an effective indicator, as it helps companies to keep the same team but retain the same results while making the most of the opportunities available to them. Here is an example of productivity data from a company that makes more than 400 workers.
It should also be noted that only 20% of an employee’s work is done by themselves (in other words, for them and for themselves!), as their main tasks are performing work that takes up a lot of time and money. This means that while they are working in a small group setting, their time can be very productive. For example, a team of 80 would work 90 hours day if that was the norm. This is the equivalent of a typical employee working for an estimated 10% of the company. For an employer that doesn’t currently have the means to hire an entire team of people to perform their business as part of its ongoing operations, performance can be rather limited at this point. For example, an
Return on equity (ROE) determines the rate of return on your investment in the business. As an owner or shareholder this is one of the most important ratios, as it shows the hard fact about the business — are you making enough of a profit to compensate you for the risk of being in business? One should compare the return on equity to other