Financial Analysis Assignment Examining Statistics Of Nike
Task: Prepare a report on reliable financial analysis on Nike Inc using company’s yearly financial report and financial statistics from its stock trading sections.
Nike is selected for this financial analysis assignment which is a leading global sports accessory brand and best known for its sports footwear. The company has been experiencing a constant upward trend since the company’s stock listing on the Daw Jones. This constant upward trend is directly associated with clothing being a basic necessity which each person must purchase despite the economic statute and income. This also makes Nike an attractive investment stock to consider but it’s important to perform a financial analysis on the company to ensure the stock is safe to invest on in the future. To help collect financial data for analysis the company’s yearly financial report and financial statistics from its stock trading sections used to provide proper feed
Nikes’ Background and Financial Statistics
Nike is the biggest sports accessory brands globally and manufactures a wide verity of sports accessories ranging from sportswear to sports and game accessories. Sportswear and accessories also tend to be a necessity for most people resulting in constant depend for the brand's products despite economic conditions (Mutter & Pawlowski, 2014). This observed on global financial fallouts like the 2008 recession when most company stocks experience huge losses while Nike maintained stability. The brand stock also amounted the only stocks which began experiencing a bounce-back before the recession was over. This fact makes the stock very attractive but as competition for other upcoming brands increases, it’s becoming more important to perform financial assist to evaluate different financial aspects. To perform accurate financial analysis and determine Nikes’ future stock price valuation and investment information analyses must be performed using the 5 main financial rations. Only after analysing the company’s performance using the liquidity Ratio, leverage (borrowing capacity) Ratio, Profitability Ratio, Ratios useful to investors (see Chapter 9) and Cash Flow will clarity in investment opportunity be determined.
Nikes Liquidity ratio will help calculate and determine the number of liquid finances and asset Nike owns the data will be used to help determine the companied financial strength. There are three types of liquidity ration namely the current ratio, acid-test ratio and the stock turnover ratio. The three ratios help determine the company’s current and future health statistics (Fang, Noe, & Tice, 2009). Data and statistics to make the required ration calculation will be extracted from the company’s balance sheet and profit and loss accounts downloaded directly from the company and financial websites.
Current Ration = = = 3.69%
By observing the above current ratio provided within this financial analysis assignment, it is clear that Nike does sustain adequate assets worth more than its liabilities. But the companies ration is also above 2% which indicates the company is holding most of its assets in the form of cash which results in slower appreciation as compared to asset investments.
Acid Test Ratio = = = 1.54%
Nikes Acid Test Ration helps collect information linked to the company’s current assets after the deduction of stock investment. This ration is ideal between 1to 1.5 % as this figure indicated the company is capable of repaying his debt and liabilities without being reliant on the sale of stocks or other financial sources.
Stock Turnover Ratio = = = 94.77
The Stock turn over ration discussed within this financial analysis assignment helps identify the number of times a company manages to sell out and replace all its stocks to investors. The number would vary depending on the product and services being sold as well as by the number of products brand recognition. Companies with a good stock turn over should range of 70-100 meaning they are capable of turning over the entire equity stock holding each week. This shows high investor interest on the stock making it more reliable for investors to purchase.
Leverage (borrowing capacity) Ratio
The leverage ratio help to calculate a company’s equity investment vs. its dept. financing which results in determining the companies lend ability. This ration help determines a company’s security about securing financial lenders (Jarrow, 2013). 3 separate ratios are falling under Leverage ratio as discussed below:
Debt Ration = = = 0.064
Debt Rations require to be calculated for 3 to 5 years consecutively which will help determine the company’s debt trends. It’s important that the ration gradually reduces of grown less to indicate the business is gradually coming out of debt.
Debt Equity Ratio = = 0.110
Dept. Equity rations help calculate the companies dept. repayment ration and speed which helps with determining the willingness of lenders to lend funds and loans to the company. The ratio plays an important role for companies who intend on expanding operation using borrowed funding. Debt Equity ratios show gradual increase indicating the increasing willingness for finances to lend the company funds.
Debt Service Ratio (DRS) = EBIT ÷ = = 1.82%
This ratio mentioned in this financial analysis assignment is used to calculate whether the company can afford to borrow funding for future expansions. This ration helps determine the company’s current growth rate as opposed to the amount borrowed plus interest to determine the annual grown. Idea growth levels range above 2%.
Gross Profit Margin = 0.44
Operating Profit Margin = 0.20
Pre Tax Margin = =0.127
Net Profit Margin = 0.096
ROA = 0.146
The above rations help to calculate different aspects linked to the businesses profitability and growth. Each of the figures must remain below 0.5 to indicate constant growth and high demand for the company shares and stock (Fama & French, 2006). The profitability ratio helps deliver and predicted moving average which can be expected from the company stock investment.
Cash Flow Ratio
A business’s cash flow represents the amount of money the company is receiving as opposed to the amount of money the business is spending (Hatefi Majomerd, Moradi, & Reza Abbaszadeh, 2013). This helps determine the amount of money remaining with the organisation which can be used for running operations.
Operating Cash Flow = (Revenue – Goods and Supply Cost – operating expenses + deprecation – Taxes)
Operating Cash Flow = (27,799 – 15,353 – 5,735 + 518 – 856) = 6373
By analysing the above calculation it’s visible the company is managing to retain a positive figure linked to the cash flow even after reducing all expenses. The company continues to manage an average of approximately 25% of its total revenue as available cash flow funds.
Free Cash Flow = (Revenue – Cost of Goods – operating Expense – change in working Capital – Capital Expenditure)
Free Cash Flow = (27,799 – 15,353 – 5,735 – 0 – 5,865) = 846
Once again it is clear from the above calculation provided in this financial analysis assignment that Nike Inc. cash flow remains positive even after deducting all expenses which mean the company continues to save funds after its operations and business. It’s very important to calculate all these rations when measuring a business’s invest ability as it would allow the investor to assess the organisation from different perspectives (Richardson, 2006). This would then result in greatly increasing the potential of the investor to make wiser investments which would deliver secured returns after the shortest period
Additional Company Financial Analysis Ratios
As the number of investors to the equity market increase, it has become very important to learn to measure the different financial ratios. This ratio help assess the companies fundamentals allowing the investor to make more secure investments and reduce the risk of loss. In-depth financial analysis helps long term investors determine important indicators linked to business stability and projections linked to the businesses grow in the future (Chin, Gun, & Poon, 2010). The statistics can also be used to analyze a company’s daily stock movement stability which could help guide data traders in investing in stable company stocks.
The statistics produced through the ratio calculations performed above within this financial analysis assignment it is clear that Nike Inc. is a preferred investment stock due to its consistent upward trend. The stock has also never shown any significant falls resulting in a highly attractive stock but also one which is unpredictable due to the lack of fluctuations on the company stock price (Lin, Liang, & Chen, 2011). by viewing the company stock flow chart on the finance websites it's apparent the company stock has never experienced a crash which is also a considerably dangerous aspect linked to the investment since its likely to experience a serious fall without warning leading loss. Closely examining and measuring a company’s financial statistics will allow the investor to determine long term financial trends which can help them avoid experiencing losses. To make accurate predictions and analysis of a company’s finances and stock stability it’s important to make sure you use a combination of tools and techniques. there are several tools availed on the internet which help to make the colocations but it’s also important to learn the techniques which will allow for the investor to make manual calculations of the statistics. This helps develop the investors’ confidence regarding the numbers reassuring him that investing with the company is safe.
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