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- 1. BasicAccounting ACC30205 NAME:NGIENGTIENYUNG(0320221) TERENCETANPENGONG(0320275) TANMINGHOWE(0320199) ASSIGNMENT:FINANCIALRATIOANALYSIS COMPANYNAME:NIKE LECTURER:MR.CHANGJAUHO
- 2. Tableofcontent 1.HistoryofNIKE 2.Recentdevelopment 3.Profitabilityratio 4.Stabilityratio 5.Priceearningratio 6.Investmentrecommendation 7.Appendix 8.References
- 3. BRIEFHISTORYOFNIKESLIFE ItallstartedinthebackofPhilKnightscartrunk,backthenallPhilhad wasadreamtocreatelightermoredurableathleticshoes,alongsideBill Bowermantheypursuedtheirpassionsforathleticism.Theirburningdesirefor highquality,durable,lowcostshoesfueledtheirambitionallthewaythrough, betweenthesetwobrilliantmindstheseedofwhatistobecomethemost influentialathleticscompanywasplanted.ButNikedidntjustburstoutintothe sceneconqueringthemarketandathleticworld,Philwasoneofthefirst distributorsfortheJapanesecompanyOnitsukasellingtheTigerShoesto americans,hewasearningadecentlivingfromthatandcouldjustkeptongoing sellingtheOnitsukas,butitwasntwhatPhilwanted. Bythelate70sPhilmanagedtoachieve$1millioninsalesrevenuefrom theOnitsukas,hisnextmovewascreatingNike.Inthelate70shetookNike froma$10millionandturneditintoa$270millioninsaleswithinthatsame year.Howisitevenpossibleyouask?Nikestartedwhatwouldbewrittendown intextbookhistoryasthefitnessrevolutionwhereamericansallswappedtheir chipsandbaconforshoesandsweatpantsandthingsonlygottenbetterfrom thereonthen,ridingthesuccesswavethroughthe80sand90s.Theubiquitous swooshlogowasrecognizedbythemassesbetterthananyothersportingbrands. TodayNikeisa$25.3billiondollarcompany,clothingsomeofthebest athletesintheworldandchangingourfitnesslifeforthebetter.
- 4. NIKESRECENTDEVELOPMENT Since the 1970s, Nike has come a long way from being a domestic American brand transforming into an international powerhouse for athletic apparel. With the all the crazy advancements in technology, it would sure to have spilled some over into the world of athleticism. Currently Nike features research facilities such as motion capture labs where athletes will perform an action and be recorded on high speed cameras whereby it will be analysed by nurses and coaches advising at which moment in time the weight is located in which internal joint, by gathering these insight Nike is able to develop a better understanding and is able to develop better future products allowing athletes to outperform their predecessors by adding science into the designs of the products, ever improving the material, quality and weight of their apparel, reducing the drag on clothings and incorporating technology as a training companion, such as the newly released fitband a device which encourages the average joe to take the stairs instead of the escalatorinafunandcompetitiveway.
- 5. Profitability ThefollowingtableshowsthecalculationandinterpretationofNIKEfrom theyear2013to2014(USdollarsinmillions) ProfitabilityRatios 2013 2014 Interpretation ReturnonEquity (ROE) 2472 10952.5 =22.6% 2693 10952.5 =24.5% Duringtheyear2013to2014, theROEhasincreasedfrom 22.6%to24.5%.Thismeans NIKEisgettingmorereturnfrom thecapitalthanlastyear. NetProfitMargin (NPM) 2472 25313 =9.8% 2693 27799 =9.7% Duringtheyear2013to2014, theNPMhasdecreasedfrom 9.8%to9.7%.Thismeansthe abilityofNIKEtocontrolits expensesisworsethanlastyear. GrossProfitMargin (GPM) 11034 25313 =43.6% 12446 27799 =44.8% Duringtheyear2013to2014, theGPMhasincreasedfrom 43.6%to44.8%.Thismeansthe abilityofNIKEtocontrolitscost ofgoodssold(COGS)expenseis betterthanlastyear. SellingExp.Ratio (SER) 7796 25313 =30.8% 8766 27799 =31.5% Duringtheyear2013to2014, theSERhasincreasedfrom 30.8%to31.5%.Thismeansthe abilityofNIKEtocontrolits sellingexpensesisgettingworse. GeneralExp.Ratio (GER) 0 25313 =0% 103 27799 =0.4% Duringtheyear2013to2014, theGERofNikehadincreased from0%to0.4%.Theabilityof thebusinesstocontrolitsgeneral expensesisgettingworse.
- 6. FinancialExp.Ratio (FER) 0 25313 =0% 33 27799 =0.1% Overtheperiod,theFERofNike hasincreasedfrom0%to0.1%. Thismeansthattheabilityofthe businesstocontrolitsfinancial expensesisgettingworse. *Themethodweusedtoobtaincreditsalesisbydividingtherevenueinhalf.
- 7. Stability ThefollowingtableshowsthecalculationandinterpretationofNIKEfrom theyear2013to2014(USdollarsinmillions) FinancialStabilityRatio 2013 2014 Interpretation WorkingCapitalRatio (WCR) 13630 3962 =3.44:1 13696 5027 =2.72:1 Duringtheyear2013to2014,the WCRhasincreasedfrom3.44:1to 2.72:1.Thismeanstheabilityof businesstopaycurrentliabilities withcurrentassetsisgetting worsethanlastyear. However,addition,itsatisfythe minimumrequirementof2:1. Totaldebtratio (TDR) 6464 17545 =36.8% 7770 18594 =41.8% Duringtheyear20132014,the TDRhasincreasedfrom36.8%to 41.8%.Thismeansthetotaldebt ofbusinesshasincreased.In addition,itsatisfythemaximum limitby50%. InventoryTurnoverRatio (ITR) 36514279 3353 =85.7days 36515353 3715.5 =88.3days Duringtheyear2013to2014,the ITRhasincreasedfrom85.7days to88.3days.Thismeansthe businessselltheirgoodsisgetting slower. DebtorTurnoverRatio (DTR) 36512656.5 3117 =89.9days 36513899.5 3434 =90.2days Duringtheyear2013to2014,the DTRhasincreasedfrom89.9days to90.2days.Thismeansthe businessistakinglongertimesto collectthedebt. InterestCoverageRatio (ICR) 0+2693 0 =0time 33+2693 33 =82.6times Duringtheyear2013to2014,the ICRhasincreasedfrom0timeto 82.6times.Thismeanstheability ofthebusinesstopaytheinterest isgettingbetter.Inaddition,it satisfytheminimumrequirement of5times.
- 8. P/Eratio =Currentshareprice Earningpershare =$102.00 3.13 =32.6p/eratio Witha32.6p/eratio,thismeanstheinvestorsofNIKEhastowaitabout32years torecouptheirinvestment. *Earningpershare (2693millions/859.75millions)=3.13
- 9. InvestmentRecommendation Based on profitability ratio, we obtained the total Net profit margin figure (NPM). The Selling expenses (SER) and general expenses (GER) ratio for nike showed their method of handling the business had worsen even though the gross profit margin (GPM) and return on equity (ROE) had increased. Nikes ability to pay off their current liabilities is also worsening but still satisfies the 2:1 ratio of staying within the borderline of borrowing. Nikes total debt has also increased and it satisfies the 50% maximum limit. Their stock turnover has also slowed down and they are taking a longer time to reclaim old debts. On the flip side their abilityforpayinginterestisgettingbetter. In conclusion nike earned more profit in 2014 compared to 2013. The company has shown good promise in terms of revenue growth in the future as it has always managed to stay ahead of the pack not only financially but also product wise. Nike also has received AAA ratings from several different stock analysts since and has proven itself to be a very stable company. Although Nike is a great company but we do not recommend purchasing any shares from this company as it would take over a calculated 30 years to earn back a profit on your investment.
- 10. Appendix INCOMESTATEMENT
- 11. Balancedsheet
- 14. STOCKANALYSIS
- 15. REFERENCE 1. NKEKeyFinancialRatios.(2015,June1).RetrievedJune2,2015,from http://www.nasdaq.com/symbol/nke/financials?query=ratios 2. Jones,D.(2015,May26).Thefootwearandapparelgiantissettoreport anupsidefiscalfourthquarterinlateJune.NikeSharesCouldRunUpto $120,p.1.RetrievedJune2,2015,from http://online.barrons.com/articles/nikesharescouldrunupto120143266 3122 3. Schaefer,S.(2015,May11).TheWorld'sMostValuableBrands.Forbes, 77. 4. Gibson,C.,&Gibson,C.(2001).Financialreportingandanalysis:Using financialaccountinginformation(8thed.,p.307).Cincinnati,Ohio, HamiltonCity:SouthWesternCollegePub. 5. Anon,(2015).[online]Availableat: http://investors.nike.com/files/doc_financials/2014/docs/nike2014form1 0K.pdf[Accessed1Jun.2015].
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