Simmons College

Financial Analysis: Nike Inc.

Madison Darrah
Financial Accounting MGMT 110-01
Professor Nitkin
November 16, 2015

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Efficiency Ratio Analysis
Efficiency ratio analysis presents information about return on shareholders equity and return on
assets. Return on shareholders equity is how much profit a company generates with the money shareholders
have invested in the company. In addition, return on assets is how much profit a company earns for every
dollar of its assets. This means that a high percentage for both ROE and ROA is better because it means
that the company is using its resources more efficiently. In 2013, Nike Inc has a return on equity of
22.76%, 24.5% in 2014, and 27.82% in 2015. These percentages are consistently increasing concluding that
the company is improving. This improvement is shown in the ROE & ROA graph demonstrated by the blue
line with the increasing slope. Nikes return on assets remains fairly consistent over the past three years
with 14.83% in 2013, 14.89% in 2014, and a slight increase to 16.29% in 2015. Nike is consistently
receiving approximately fifteen cents on every dollar of its assets. This stability is shown in the ROE &
ROA graph demonstrated by the red line. Comparing Nike Inc to the industry, as shown in the ratio
analysis table, Nike is way better off in both return on shareholders equity and return on assets. The
industry saw a return on equity of 18% in 2013, 16.6% in 2014, and 11.2% in 2015. In addition, the
industry saw a return on assets of 6.9% in 2013, 7.5% in 2014, and 5.4% in 2015. These percentages are
much smaller than Nikes return on assets and proves that the company is better than the industry average.
Comparative of the industry, Nike Inc is improving overtime in both ROE and ROA and is doing better
than the industry. So much so, the company is seeing increasing return on stockholders equity, when the
industry is seeing decreasing returns on stockholders equity.

Profitability Ratio Analysis

The profitability ratio analysis displays data on gross profit margin, operating expenses to sale ratio,
and profit margin. In reference to the profitability graph, Nikes gross profit margin appears to be
increasing from 2013-2014 and also from 2014-2015. The values are 43.59% in 2013, 44.77% in 2014, and
45.97% in 2015. This shows that Nikes gross margins are increasing and means that Nike is improving.
Operating expense to sales ratio is also increasing from 2013-2014 and also from 2014-2015. The values
for Nikes operating expense to sales ratio are 30.8% in 2013, 31.53% in 2014, and 32.33% in 2015. This
shows that the company is worsening, even though the percentages are increasing, because if the operating

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expense ratio is increasing over time, it means the company is operating less efficiently since operating
expense to sales ratio indicates how much each dollar in sales revenue cost the company to achieve.
Looking at the profitability graph, it shows that Nikes profit margins remain fairly consistent but taking a
closer looks at the values, it shows that Nikes profit margins are increasing. The values for Nikes profit
margin are 9.68% in 2013, 9.69% in 2014, and 10.7% in 2015. Comparing Nikes profitability to the
industry average, referencing the ratio table, the industry averages for gross margin are 37.6% in 2013,
35.1% in 2014, and 34.7% in 2015. In 2015 Nikes gross profit margin was 45.97% while the industry
average was 34.7%, this percentage is lower than the previous years for the industry, concluding a
worsening gross margin. This is in contrast with Nike who experienced increasing gross margins. Nikes
gross margin is overall higher than the industry values and therefore Nike is doing better than the industry.
The industry averages for operating expenses to sale ratio are 33.5% in 2013, 30.7% in 2014, and 32% in
2015. In 2015, Nikes operating expenses to sale ratio was 32.33%, a worsening value from previous years,
while the the industry in 2015 was about the same at 32%. This shows that the company is average
comparative to the industry average. The industry averages for profit margin are 2.9% in 2013, 3.6% in
2014, and 2.1% in 2015. In 2015, the profit margin for Nike was 10.7% which is much higher than the
industry average. Nike experienced increasing profit margins that are overall higher in value and better than
the industry. Concluding, Nike is improving over time in gross profit margins, worsening over time in
operating expenses to sales ratio and experiencing improving profit margins.

Liquidity Ratio Analysis

Liquidity ratio measures the ability of a company to meet its short term debt obligations. It analyzes
both the current and quick ratios. The current ratio shows whether or not a company has enough resources
to pay of its debt over the next 12 months, while the quick ratio measures the dollar amount of liquid assets
available for each dollar of current liabilities. This means that higher values for both current and quick
ratios are better. Referencing the liquidity graph, Nike Inc is experiencing worsening current and quick
ratios overtime. The current ratio drops from 3.47 in 2013 to 2.72 in 2014, to 2.52 in 2015. The quick ratio
also drops from 2.31 in 2013, to 1.71 in 2014, to 1.47 in 2015. The values of the company are decreasing
and therefore worsening. According to the ratio table, Nikes values are about the same as the industry

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averages. The industry averages for the quick ratio were 1.00 in 2013, 1.3 in 2014, and 1.3 in 2015. Also
found in the ratio table is the industry averages for the current ratio. The industry averages for the current
ratio were 2.5 in 2013, 2.8 in 2014, and 2.9 in 2015. These numbers are increasing while Nikes ratios are
decreasing. Nike was only better off than the industry in 2013 and ever since then Nike is worse off than
the industry average. Overall, Nikes quick ratio values are higher than the industry but decrease when the
industry averages are stable. Nike is worsening overtime in the current ratio while the industry is improving
overtime. Nike is also worsening overtime in the quick ratio while the industry remains consistent. Nike is
doing worse in liquidity comparative to the industry.

Solvency Ratio Analysis

The solvency ratio measures the ability of a company to meet its long-term financial obligations. It
analyzes debt to total assets, long term debt to total assets, and times interest earned. Debt to total assets
show how much of assets are financed by creditors or debt, which means a lower percentage is better.
Using the solvency graph to analyze, Nikes debt to total assets is relatively high, increasing from 2013 to
2014 and then decreasing slightly from 2014 to 2015. Long-term debt to total assets is how much of assets
are financed with loans lasting more than a year, so a lower percentage is also better for this category.
Nikes long term debt to total assets were 14.23%, 14.75% in 2014, and 11.85% in 2015. Nikes long term
debt to total assets is relatively small comparing to the debit to total assets ratio, showing a slight increase
from 2013 to 2014 and then decreasing from 2014 to 2015. The values are 36.56% in 2013, 41.79% in
2014, and 41.17% in 2015. In contrast, times interest earned seeks a higher value since it provides analysis
on the companys ability to meet its debt obligations. Nikes time interest earned is interesting because the
numbers increase at -1079.3 in 2013, 111.5 in 2014, and 149.1 in 2015. The company experiences very low
times interest earned in 2013 proving Nikes struggle to meet its debt obligations and then spikes in 2014
and is continually increasing in 2015. This can be accounted for by increasing revenues that allows for
Nike to pay off its debt in larger amounts as the years proceed. Comparing Nike to the industry, using the
ratio table, the industry averages for debt to total assets are 56.1% in 2013, 44.4% in 2014, and 53.7% in
2015. The companys values are lower than the industry. This proves that Nike is better than the industry.
The industry averages for long term debt to total assets are 14.1% in 2013, 13.7% in 2014, and 19.3% in

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2015. Nikes values were higher than the industry in 2013 and 2014 but much lower in 2015. This proves
that as of 2015, Nike is doing better than the industry. The industry averages for times interest earned are
6.4 in 2013, 4.3 in 2014, and 3.9 in 2015. Nikes values are much lower in 2013 but also much higher than
the industry in 2014 and 2015. Therefore, Nike Inc is doing better than the industry average. Nike is
experiencing improving solvency over time and is better than the industry.

Conclusion
In order to best understand a companys financial health, it is important to analyze a companys
financial statements. Analyzing and coming to conclusions about the financial health of a company can be
found by monitoring the financial trends of the company, also figuring out where it is getting its money
from and what it is primarily spending its money on. Through financial statement analysis, it can be
concluded that the trend of Nike Inc is continuously growing and thriving financially. Because Nike Inc is
consistently seeing improvements on their return on equity and is remaining consistent with return on
assets, their company is said to be efficient. Nike Inc has proven their ability to make a profit. Their profit
margin continues to increase, same with their gross margin. Liquidity ratios show a companys ability to
turn an asset into cash and it is evident that while Nikes current and quick ratios are decreasing and
therefore worsening overtime, their numbers remain higher than the industry average. Nike Inc is a solvent
company that could use improvements on liquidity. Overall, Nike Incs financial health is strong.