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Financial Analysis and Ratios Grp. 5

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Patricia Kaye Sacdalan

on 11 October 2014

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Transcript of Financial Analysis and Ratios Grp. 5

INTRODUCTION
LIQUIDITY
PROFITABILITY
ADIDAS vs. NIKE
GROWTH
SOLVENCY
1) LIQUIDITY

2) PROFITABILITY

3) SOLVENCY

4) GROWTH

1) NET PROFIT MARGIN
1) SALES GROWTH
1) DEBT RATIO
Presented by Group 5
Members:

Patricia Kaye Sacdalan

Catherine Nunez

Jonel Pialago

Arneleen Parales

Ron Arthus Martinez
Financial Ratio Analysis
Financial Analysis is the process of evaluating businesses, projects, budgets and other finance-related entities to determine their suitability for investment. Typically, financial analysis is used to analyze whether an entity is stable, solvent, liquid, or profitable enough to be invested in. When looking at a specific company, the financial analyst will often focus on the income statement, balance sheet, and cash flow statement. In addition, one key area of financial analysis involves extrapolating the company's past performance into an estimate of the company's future performance.
2) CURRENT RATIO
3) QUICK RATIO
= Current Assets - Current Liabilities
= Current Assets / Current Liabilities
= (Current Assets - Inventory) / Current Liabilities
ADIDAS
NIKE
WC = Current Assets - Current Liabilities
ADIDAS VS. NIKE
Working capital
is a common measure of a company's liquidity, efficiency, and overall health.
Positive working capital generally indicates that a company is able to pay off its short-term liabilities almost immediately. Negative working capital generally indicates a company is unable to do so. A decrease in working capital might suggest a company is becoming
over leveraged
, is
struggling to maintain or grow sales
, is
paying bills too quickly
, or is
collecting receivables too slowly
. Increases in working capital, on the other hand, suggest the opposite.
ADIDAS
CR = Current Assets / Current Liabilities
NIKE
CR = Current Assets / Current Liabilities
ADIDAS VS. NIKE
A high current ratio indicates that a company is able to meet its short-term obligations. A low current ratio could suggest
problems with inventory management
,
ineffective or lax standards for collecting receivables
, or an
excessive cash burn rate
. Increases in the current ratio over time may indicate a company is "growing into" its capacity, while a decreasing ratio may indicate the opposite.
Tracking the current ratio and other liquidity ratios helps an investor assess the health of a company.
ADIDAS
QR = (Current Assets - Inventory) / Current Liabilities
NIKE
QR = (Current Assets - Inventory) / Current Liabilities
ADIDAS VS. NIKE
The quick ratio is a measure of how well a company can meet its short-term financial liabilities.
In general, low or decreasing quick ratios generally suggest that a company is over-leveraged, struggling to maintain or grow sales, paying bills too quickly or collecting receivables too slowly. On the other hand, a high or increasing quick ratio generally indicates that a company is experiencing solid top-line growth, quickly converting
receivables into cash, and easily able to cover its financial obligations.
=Net Income / Revenue
2)TOTAL ASSETS (ROA or ROI)
= Net Income / Average Total Assets
3) RETURN ON EQUITY
= Net Income / Average Owner's Equity
ADIDAS
Adidas AG
is a German multinational corporation that designs and manufactures sports shoes, clothing and accessories based in Herzogenaurach, Bavaria, Germany. It is the holding company for the Adidas Group, which consists of the
Reebok sportswear company
, T
aylorMade-Adidas golf company
,
Rockport
, and 9.1% of
FC Bayern Munich
. Besides sports footwear, Adidas also produces other products such as bags, shirts, watches, eyewear, and other sports- and clothing-related goods. Adidas is the largest sportswear manufacturer in Europe and the second biggest in the world, after Nike.
It was founded in 1949 by Adolf Dassler, following the split of Gebrüder Dassler Schuhfabrik between him and his older brother Rudolf. Rudolf had earlier established Puma, which was the early rival of Adidas. Adidas and Puma are both currently based in Herzogenaurach, Germany.

The company's clothing and shoe designs typically feature three parallel bars, and the same motif is incorporated into Adidas's current official logo.
NIKE
Nike, Inc.
is an American multinational corporation that is engaged in the design, development, manufacturing and worldwide marketing and selling of footwear, apparel, equipment, accessories and services. The company is headquartered near Beaverton, Oregon, in the Portland metropolitan area. It is one of the world's largest suppliers of athletic shoes and apparel and a major manufacturer of sports equipment, with revenue in excess of US$24.1 billion in its fiscal year 2012 (ending May 31, 2012) and as of 2012, it employed more than 44,000 people worldwide. In 2010 the brand alone was valued at $10.7 billion, making it the most valuable brand among sports businesses.
The company was founded on January 25, 1964, as
Blue Ribbon Sports
, by Bill Bowerman and Phil Knight, and officially became Nike, Inc. on May 30, 1971. The company takes its name from Nike, the Greek goddess of victory. Nike markets its products under its own brand, as well as
Nike Golf, Nike Pro, Nike+, Air Jordan, Air Force 1, Nike Dunk, Foamposite, Nike Skateboarding
, and subsidiaries including
Brand Jordan, Hurley International
and
Converse
. In addition to manufacturing sportswear and equipment, the company operates retail stores under the Niketown name. Nike sponsors many high-profile athletes and sports teams around the world, with the highly recognized trademarks of "Just Do It" and the Swoosh logo.
WC = Current Assets - Current Liabilities
1) WORKING CAPITAL
ADIDAS
NPM=Net Income / Revenue
This shows the adequacy of the revenue to earn profit. In 2013, 5.43% of revenues earned went to profit while in 2012, it was only 3.53% or for every dollar of service rendered, the business earned $0.0543 profit in 2013 and $0.0353 profit in 2012. Higher the ratio the more profit the business is.
NIKE
NPM=Net Income / Revenue
This shows the adequacy of the revenue to earn profit. In 2013, 9.82% of revenues earned went to profit while in 2012, it was only 9.21% or for every dollar of service rendered, the business earned $0.0982 profit in 2013 and $0.0921 profit in 2012. Higher the ratio the more profit the business is.
ADIDAS VS. NIKE
Net profit margin is one of the most closely followed numbers in finance. Shareholders look at net profit margin closely because it shows how good a company is at converting revenue into profits available for shareholders.
When a company's net profit margin is declining over time, a myriad of problems could be to blame, ranging from decreasing sales to poor customer experience to inadequate expense management.
ADIDAS
Average Total Assets
Current Total Assets + Previous Total Assets
2
Net Income
[
]
The rate return shows the Income earned by the business based on assets invented. A high rate means the assets are being used profitability by the business. In 2013, the rate or net Income earned by the resources was 6.91% which was higher compared to 4.61% in 2012.
Current Total Assets + Previous Total Assets
2
Net Income
[
]
NIKE
Current Total Assets + Previous Total Assets
2
Net Income
[
]
The rate return shows the Income earned by the business based on assets invented. A high rate means the assets are being used profitability by the business. In 2013, the rate or net Income earned by the resources was 15.04% which is higher compared to 14.60% in 2012.
ADIDAS VS. NIKE
Return on assets measures the amount of profit the company generates as a percentage of the value of its total assets.
The profit percentage of assets varies by industry, but in general, the higher the ROA the better. For this reason it is often more effective to compare a company's ROA to that of other companies in the same industry or against its own ROA figures from previous periods. Falling ROA is almost always a problem.
Average Owner's Equity
Current Owner's Equity + Previous Owner's Equity
2
Net Income
[
]
ADIDAS
Current Owner's Equity + Previous Owner's Equity
2
Net Income
[
]
This means that owners earned 14.90% on their investment in 2013 compared to 10% in 2012. Based on the above computations, the business is a profitable venture and its profitability has improved from years 2012 to 2013.
NIKE
Current Owner's Equity + Previous Owner's Equity
2
Net Income
[
]
This means that owners earned 23.08% on their investment in 2013 compared to 21.98% in 2012. Based on the above computations, the business is a profitable venture and its profitability has improved from years 2012 to 2013.
ADIDAS Vs. NIKE
ROE is more than a measure of profit; it's a measure of efficiency. A rising ROE suggests that a company is increasing its ability to generate profit without needing as much capital. It also indicates how well a company's management is deploying the shareholders' capital. In other words, the higher the ROE the better. Falling ROE is usually a problem.
2) EQUITY RATIO
= Total Liabilities / Total Assets
= Total Owner's Equity / Total Assets
ADIDAS
DR = Total Liabilities / Total Assets
NIKE
DR = Total Liabilities / Total Assets
ADIDAS VS. NIKE
The debt ratio indicates the percentage of a company's assets that are provided via debt.
A debt ratio of greater than 1 indicates that a company has more debt than assets. Meanwhile, a debt ratio of less than 1 indicates that a company has more assets than debt. A low percentage means that the company is less dependent on leverage, i.e., money borrowed from and/or owed to others. The lower the percentage, the less leverage a company is using and the stronger its equity position. In general, the higher the ratio, the more risk that company is considered to have taken on.
ADIDAS
ER = Total Owner's Equity / Total Assets
NIKE
ER = Total Owner's Equity / Total Assets
ADIDAS VS. NIKE
In general, higher equity ratios are typically favorable for companies. This is usually the case for several reasons. Higher investment levels by shareholders shows potential shareholders that the company is worth investing in since so many investors are willing to finance the company. A higher ratio also shows potential creditors that the company is more sustainable and less risky to lend future loans.
The equity ratio measures the amount of assets that are financed by owners' investments by comparing the total equity in the company to the total assets.
= - 1 X 100
Current Sales

Previous Sales
( )
2) NET INCOME GROWTH
= -1 X 100
Current Net Income

Previous Net Income
( )
ADIDAS
= - 1 X 100
Current Sales

Previous Sales
( )
NIKE
= - 1 X 100
Current Sales

Previous Sales
( )
ADIDAS VS. NIKE
Sales Growth illustrates sales increases/decreases over time. It is used to measure how fast a business is expanding.
ADIDAS
= -1 X 100
Current Net Income

Previous Net Income
( )
NIKE
= -1 X 100
Current Net Income

Previous Net Income
( )
ADIDAS VS. NIKE
Net-income growth gives a good picture of the rate at which companies have grown their profits. All things being equal, stocks with higher net-income growth rates are generally more desirable than those with slower net-income growth rates.
Net Income Growth is a measure of growth in a company's net income over a specific period.
Working capital was higher in 2012 at $3,307,000 against on its current year (2013) at $2,925,000 only. It shows, working capital of Adidas Company is getting lower.
Working capital was higher in 2013 at $9,700,000 against $7,666,000 in 2012. The analysis will show working capital is getting higher.
The rule of thumb is a 2:1 ratio. Adidas has 1.45 current assets to pay for a dollar of a current liability in 2013 against 1.57 current assets to pay for a dollar of current liability in 2012 ratio. Both periods are not showing liquidity.
The rule of thumb is a 2:1 ratio. Nike has 3.47 current assets to pay for a dollar of a current liability in 2013 against 2.98 in 2012. It shows their business is very liquid on both periods.
The rule of thumb is a 1:1 ratio. Adidas has 1.00 quick assets to pay for a dollar of current liability in 2012. It means they still have the capability to pay their obligations on the said period against on 2013 which has 0.89. It shows that the business has negative cash flow and it is getting lower on the current period. It may be hard for them to lend to their creditors and may result of lack of funds to support their business.
The rule of thumb is a 1:1 ratio. Nike has 2.60 quick assets to pay for a dollar of current liability in 2013 against 2.12 in 2012. They have sufficient funds and can pay firm’s obligations.
In 2012, 54.47 % of the assets were provided by creditors. It decreased on the following year with a percentage of 52.67%
In 2012, 32.87 % of the assets were provided by creditors. It increased on the following year with a percentage of 36.56%
Using the equity ratio, we can see that assets that were provided by owners in the year 2012 which iss 67.13% is higher than that of the year 2013 which is 63.44%. It clearly states that it decreased.
Assets from investments in the year 2012 were lower at 45.41% than in the following year 2013 which was 47.25%
ADIDAS NIKE
ADIDAS NIKE
ADIDAS NIKE
ADIDAS NIKE
Thank you for listening!
ADIDAS vs. NIKE
Full transcript