Nike: Financial Performance - Essay Example

and Section # of Nike Financial Performance The year 2008 ad 2009 challenged every company to bring out their inner strengths and to adapt to the changing environment. Nike performed especially well in the year 2009 which proved the management of the company. The company, revenues grew by 3% in the fiscal year 2009 amounting to $19.2 billion. The company had a diluted EPS of 3.88 which showed an increase of 10 percent compared to the last year. Bloomberg Businessweek evaluates Nike and ranks it as of the best companies in the relevant industry with strong financial balance sheets and future outlook (Bloomberg, 2010). I will further elaborate on the financial performance with the help of the following ratio analysis. For the ratio analysis, the figures have been taken from the 2008 and 2009 financial statements. Ratio Analysis Current Ratio 2009 2008 3.0 2.7 The current Ratio evaluates the liquidity of the company. It represents a safety net for the creditors. Nike has improved its liquidity over the last year. It now holds $3 for every $1 of its short term debts as compared to $2.7 of last year. In comparison to the relevant industry, it is one of the most liquid companies’ (Bloomberg, 2010). The analysis further shows that Nike holds an excess of the working capital in current assets which should be invested in the marketable securities for generation of further income. Quick ratio 2009 2008 Current Assets less inventory and prepaid 9912.1 8293.9 Current Liabilities 4089.7 3974.6 2.4 2.1 The Quick Ratio is another measure of solvency and measures the liquidity of the company. This ratio removes the inventory and prepaid from the current assets as they are not as liquid as others. Nike has improved its liquidity position in the market with a ratio of 2.4 as compared to 2.1 in 2008. It now holds $2.4 for every dollar of short term obligations to the creditors. The analysis further shows that more than 50% of the assets are help up in the receivables and hence, the company depends on the collections for meeting of the obligations. Compared to the industry, Bloomberg again reflects on the liquidity position of the company as one of the better company’s income (Bloomberg, 2010). Debt to Equity 2009 2008 Debt 437.2 441.1 Equity 8693.4 7825.6 0.050 0.056 The Debt to Equity ratio indicates the strength of the balance sheet rather than the growth and earnings prospects. Nike has reduced its debt ratio from 6% to 5% in 2009. Even though, the company increased the lending but at the same time, it also increases its equity in the market. Nike has always maintained its strength in the balance sheet because of the less leverage. Nike generated $0.05 in addition to a dollar in equity. Industry comparison shows that the company is least risky but it must add on its debt more so that it can generate more income (Bloomberg, 2010). The company is missing on many opportunities which could be leveraged with the help of more debt. Return on Assets 2009 2008 NI 1486.7 1883.4 Assets 13246.6 12442.7 11% 15% The Return on Assets determines the return that is earned on the assets that are provided by the creditors and the owners of the company. The return has declined immensely from 15% in 2008 to 11% in 2009. This means that Nike produced 11 cents for every dollar that was invested in the organization by the creditors and owners in 2009 compared to 15 cents in2009. The period corresponds to a financial crunch which had lowered the purchasing power of million so people around the globe. Therefore, the net income had declined by more than $390 million which has affected the return on the assets. In comparison to the industry, Nike still leads the market with one of the highest returns provided to the stakeholders (Bloomberg, 2010). Gross Profit Margin 2009 2008 GP 8604.4 8387.4 Revenue 19176.1 18627 45% 45% The Gross Profit Margin represents the efficiency and effectiveness of the company’s production facilities and the management. Therefore, it is an important measure from an investor’s point of view that looks into efficiency as a measure. Nike has maintained the efficiency of the company’s operations over the two years and has maintained a margin of approximately 45%. This signifies that Nike contributes 45 cents to the net income for every dollar sale that is transacted. The stability of the gross profit margin also denotes the stability of the accounting policies being followed by the company. With respect to the industry, it gives one of the better margins compared to its formidable competitors (Bloomberg, 2010). Net Margin 2009 2008 NI 1486.7 1883.4 Revenue 19176.1 18627 8% 10% The Return on Sales signifies that the contribution to the net income for every dollar of sale that is transacted. Nike profit margin has declined from 10% in 2008 to 8% in 2009. This means that each sale of $1 contributed 8 cents to the net income in 2009 compared to 10 cents in 2008.The analysis shows that there has been a decrease in the generation of the net income due to the financial crunch. Even though the revenues have shown some increase, the overheads had risen sharply over that period which had condensed the bottom line earnings. Compared to the relevant industry, Nike still is one of the companies with the best profit margins (Bloomberg, 2010). Inventory Turnover 2009 2008 COGS 10566 10244.9 Inventory 2357 2438.4 4.5 4.2 The management of the inventory is essential for all sorts of companies. The company must be effective so that it has least costs relevant to the managing of the inventory and is able to fulfill the customer demands every time. Nike was able to sell its inventory 4.5 times in 2009 as compared to 4.2 times in 2008. This signifies that the management of the inventory has slightly improved or remained the same over the year. Nike performs as a better company as compared to its competitors in the industry (Bloomberg, 2010). In other words, Nike held its inventory in its warehouses for 80 days as compared to 88 days in 2008. Therefore, this shows the slight improvement in the management. The future is bright for the company; their liquidity position is great in the market. Their return on assets and net margin has fallen down which may not be an alarming sign as recession and the economic crisis can trigger low spending in consumers which is translated into lower sales and lower return and margins. The drop is not much hence Nike has nothing to worry about. They can leverage their organization more to add more value and generate more income in the market. The future for Nike has never been brighter. They have secure liquidity and solvency position and hence can take risks in the market to generate more profits. The comparison with Bloomberg shows that Nike has been faring better than most of its competitions in almost all the respects of the financials, showing that the company is most of the things right when it comes to strategy. Therefore, they should continue their aggressive marketing strategies, along with the sound financial position and keep on adding value to their customers and stakeholders. Works Cited Weygandt, J. J. Keiso, D. E. Kimmel, P. E. Financial Accounting. Wiley (200) Read More