Financial Statements Ratios in Nike

Financial Statements Ratios in Nike

Liquid ratios

The liquid ratios shos the capability of an organization to pay its short term obligations on time. The two liquidity ratios include the current ratio and quick ratio. The current ratio is a comparison between the current assets versus the current liabilities. The quick ratio showcases the ability of an organization to pay its short term debts using liquid assets in the absence of its total inventories. The current ratio of Nike is currently at 2.0x, and the quick ratio is at 1.23. When a current ratio is above one, it means it has more assets than liabilities and can, therefore, be able to settle short-term obligations. When the quick ratio is above 1, then the company can also be able to settle short term debts in the absence of inventories. Nike is, therefore, able to settle its short term liabilities.

Profitability ratios

The profitability ratio is a financial ratio showing an organization’s capability to generate profits. These ratios include the ROA and ROE. ROA stands for return on assets, and it is a ratio that shows how good a company is able to make profits using its current assets. ROE stands for return on equity, and it shows how well a company is putting the investors’ money to good use so as to generate profits. ROE for Nike stands at 50. 6% showing that for every $1, the company generates $5.the recent ROA is 18.6%. The ROE of 50% shows the company is making good money from investors, and a ROA of 18% shows that it is able to make profits from assets as a 5% ROA is considered good..

Solvency ratios

The solvency ratios are the financial ratios that measure the stability of a company. It measures the ability of a company to pay its long term obligations. The two types of solvency ratios include debt to equity and total debt to total assets. The debt to equity ratio compares the company’s debt to equities. It indicates the company’s overreliance on debts. Total debts to total assets compare both long term and should term debts to total assets. Nike’s debt to equity ratio is at 0.66, while total debts to total assets is 0.23. The debt to equity ratio shows that the company relies more on equity than debt. Total debt to total assets ratio shows that the company has more assets than debts and can be able to pay its long term debts comfortably.

Is the company moving in the right direction?.

Nike is stable for now. Return on equity increased from 17/4% in 2018 to 50.6% in 2019. ROA increased from 8% in 2018 to 18. 28% in 2018. This shows that the company continues to increase its ability to generate profits. However, the current ratio has been decreasing since 2016. The current ratio was in 2016 was 3.06, while in 2019, it was 2.0. This shows that the company is increasingly dependent on short term debts. Long, however, the dependency of long term debts has reduced since, in 2018, total debts to total assets were 0.15 and 0.23 in 2019. The company should take caution in reliance on debts.

Comparison with Adidas

The current ratio in Adidas is at 1.37, while the quick ratio is at 0.91. These ratios show that Nike is in a better position to pay its short term liabilities. ROA is 11.49%, while the ROE is at 37.16%. ROE shows that Adidas is able to pay off its stakeholders better than t=nike, but it is not able to generate profits from assets as Nike does. The debt to equity ratio is 0.26, and total debt to total assets is at 0.8. These ratios are quite low, showing the company is not dependent on the debts of the company.

References

Macrotrends. (n.d). NKE Financial Ratio for Analysis 2005-2020/   NKE

Macro trends. (n,d) Adidas AG Financial Ratios for analysis 2005-2020/Adidsd.