Adidas and Nike
Abstract
Nike and Adidas are companies belonging to the same industry. This report gives an analysis of the two companies in areas of growth, profitability, solvency, and management effectiveness. It will further review some ratios that indicate the financial health and performance of the two companies.
The following are some of the key findings:
For Nike
The quick ratio of Nike is more than 1, indicating that the company can meet its financial obligations.
The financial risk of Nike Company increased in the year 2019 as reflected in the increase of debt to equity ratio
The revenue and assets of Nike increased
The net profit margin for the company increased in 2019 as compared to 2018
In Nike, there has been growth in the sales and assets when the years 2018 and 2019 are compared.
For Adidas
Nike’s profitability increased tremendously in 2019 from 2018
The asset and revenue of Adidas increased
Adidas is heading toward insolvency since it has a quick ratio of less than 1
The financial risk of the company is increasing
Compared to Nike, Adidas has less financial risk since its debt to equity ratios are less for both years under investigation. Financial Management & Financial Decisions Nike & Adidas
Nike
Growth
There are various indicators of growth in a company which include the percentage change in sales or revenue, the percentage change in assets, the number of employees hired, and growth in assets and cash flows (Businesswire, 2019).
Growth in Revenue Nike
Growth in revenues is given by:
(Current revenue- Previous revenues)/previous revenues *100%
= ( $ 39.117b-36.397b)/36.397 * 100
= 7.5%. The revenue for Nike grew by 7.5% in the year 2019 as compared to 2018.
Growth in Assets
= (Total assets in 2019- Total assets in 2018)/Total assets 2018 *100%
=5.24 %
Profitability
Profitability indicators include measures such as the Gross profit margin and the net profit margin
Net Profit Margin
NPM represents the percentage of sales left after all expenses have been paid, including interest and taxes (Wahlen et al., 2011). BUS 317 Financial Management & Financial Decisions Nike & Adidas Presentation
=Net Income/sales * 100
For 2019 NPM =$4.029 b/39.117b *100
= 10.3%
For 2018 NPM = $ 1.933b/36.397
=5.3%
The net profit margin for the company increased in 2019 as compared to 2018, which is attributed to growth in revenue (BusinessWire, 2019). Financial Management & Financial Decisions Nike & Adidas
Financial health
The financial health of a company is assessed by analyzing the balance sheet. A common indicator of the financial health of the company includes:
The quick ratio
Quick Ratio = (current Assets-Inventory)/current liabilities
Quick ratio for the year 2019= (16525-5622)/7866
=1.3
For 2018, the quick ratio = (15134-5261)/6040
= 1.63
A quick ratio of 1 and above indicates that a business can meet its current financial obligations (Businesswire2019). Therefore, Nike is a liquid company that can meet its current obligations as and when they fall due.
The Debt/Equity ratio
D/ E ratio is an indicator of the financial leverage of a company. A high D/E ratio indicates that the company is operating at a higher financial risk (Wahlen et al., 2011).
D/E ratio = Total liabilities/ Total shareholders Capital
D/E ratio for the year 2019 = 11330/9040
= 1.25
For the year 2018 = 9508/9812
= 0.96
The financial risk of Nike Company increased in the year 2019, as reflected in the increase of debt to equity ratio.
Price ratios
The P/E ratio measures a company’s share price taking into consideration the earning per share. The P/E ratio enables a comparison of companies within the same industry in the same period.
P/E ratio= Market value of the share / Earnings per share
P/E ratio= $95.61/$ 0.53
=180.3962
Management Effectiveness
The effectiveness of the management is measured by various indicators such as profitability, the rate of productivity, the management of labor relations, and the relationship maintained with external and interested parties (Adidas 2019). In Nike, there has been growth in the sales and assets when the years 2018 and 2019 are compared. The company has positioned itself competitively by value creation, product innovation, and brand name recognition.
Adidas
Growth
Growth of revenues/sales
= (Net sales for 2019 – Net sales for 2018)/ Net sales for 2018 * 100
= (23640-21915)/21915
= 7.87%
Asset growth
= (Total Assets 2019- Total Assets 2018)/ Total assets 2018 * 100
= (20680-15612)/15612 * 100
=32.5%
The assets of Adidas grew by 32.5 %
Profitability
Net profit margin
NPM 2019 = Net income/ sales * 100
=2558/23640 * 100
=10.82 %
NPM 2018= 2378/21915
=10.85%
The Net profit margin is stable and within the industry average. Compared to Nike, Adidas is relatively more stable in its profitability (Adidas 2019). Nike’s profitability increased tremendously in 2019 from 2018 indicating the effectiveness of the management in driving profitability levels up
Financial health
Quick ratio
= (Current Assets –Inventory)/ Current liabilities
Quick ratio for 2019 = (10934-4085)/8754
== 0.78
For 2018 = (9813 – 3445)/6834= 0.93
From the above computation, it is evident that Adidas is heading toward insolvency, whereby it will have difficulties meeting its current obligations. Adidas’ current ratio is less than that of Nike. It is also less than the recommended industry average of 1 (Macrotrends, 2020).
Debt Equity Ratio
D/E ratio = Total liabilities/ Total shareholders Capital
D/E ratio for the year 2019= 4868/6796
= 0.72
For 2018 = 2414/6377
=0.378
The financial leverage for Adidas Company has increased tremendously from 2018 to 2019. Thus, the financial risk of the company is increasing as the company depends more on external borrowing (Adidas 2019). Compared to Nike, Adidas has less financial risk since its debt to equity ratios are less for both years under investigation. Financial Management & Financial Decisions Nike & Adidas
Price ratios
Price-Earnings ratio = Market value of the share/ Earnings per share
P/E ratio= $ 230.10/$ 0.47
=489.5
Compared to Nike, Adidas has a high P/ E ratios. This is indicative of either an overvaluation of the company’s share price or anticipation of future increase in the share price of Adidas (Adidas 2019).
Management effectiveness
Adidas recorded stellar operational and financial advancement in the 2019 financial year. Sales grew by 7.8%. The gross margin improved by 0.2% while operating expenses went down by 0.2%. Also, the Net Income from the operations increased by 12% (Adidas, 2019).
Conclusion
A comparison of the two companies reveals performance variances of different aspects of the business. For instance, Adidas has a high P/E ratio compared to Nike, yet it has a lower than industry average current ratio. Both companies experienced growth in revenues and assets and have relatively low financial risks as compared to the industry average.
References
Adidas. (2019), Home. adidas Annual Report, 2019. https://report.adidas-group.com/2019/en/
Businesswire (2019, June 27). NIKE, Inc. Reports fiscal 2019 fourth quarter and full-year results. https://www.businesswire.com/news/home/20190627005883/en/NIKE-Reports-Fiscal-2019-Fourth-Quarter-Full
Macrotrends. (2020). NIKE financial statements 2005-2020 | NKE. Macrotrends | The Long Term Perspective on Markets. https://www.macrotrends.net/stocks/charts/NKE/nike/financial-statements
Wahlen, J. M., Baginski, S. P., & Bradshaw, M. (2010). undefined. Cengage Learning. Financial Management & Financial Decisions Nike & Adidas
