Nike Inc., Ratio Analysis

Nike Inc., Ratio Analysis

Introduction

Nike Inc. is the leading innovator of athletic footwear, equipments, apparel, and accessories all around the world. In order to analyze whether the investor should invest in this firm or not i.e. the firm is financially strong and promises profitable returns, financial ratios of Nike can be analyzed. Thus, this report provides the calculation as well as interpretation of key financial ratios of Nike, while suggesting whether to invest in its stock or not.

Discussion

Debt-To-Equity Ratio

Debt to Equity Ratio

Total Debt

2011

2012

Accounts Payables

$ 1,469 $ 1,588

Accrued expenses

$ 1,654 $ 1,833

Short-term borrowings

$ 187 $ 108

Current portion of long term debt/Capital lease

$ 200 $ 49

Other current liabilities

$ 331 $ 220

Long-term debt

$ 276 $ 228

Other liabilities

$ 921 $ 991 Total Debt $ 5,038 $ 5,017

Total Equity

 

 

Total Preferred Equity

$ - $ -

Common Stock

$ 3 $ 3

Additional Paid-in capital $ 3,944 $ 4,641

Retained earnings

$ 5,801 $ 5,588

Comprehensive Income and Other

$ 95 $ 149

Total common Equity

$ 9,843 $ 10,381 Total Equity $ 9,843 $ 10,381

Debt/Equity Ratio

51%

48%

Nike's total debt to equity ratio has declined by 5.88%, which represents that the company has sound solvency position. The debt to equity ratio is a solvency ratio calculated by dividing the total debt to total equity of shareholders, and it reveals what proportion of equity and debt the business is using to finance its assets. In case of Nike, total debt of the firm has remained almost same in 2011 and 2012; however, total shareholder's equity has increased greatly as compared to the total debt i.e. by almost 5%. This increase in the total shareholder's equity is mainly associated with the increase in additional paid-in capital as well as comprehensive income and others. Thus, as a result total debt to equity of the company has reduced, which reveals that the firm has controlled its financing through debt by managing it effectively. Hence, the debt to equity of the firm is representing that Nike uses sound proportion of its equity and debt to finance its assets.

Current Ratio

Current Ratio

Current Assets

2011

2012

Total cash & short-term investments

$ 4,538 $ 3,757

Accounts Receivables

$ 3,138 $ 3,280

Inventory

$ 2,715 $ 3,350

Prepaid Expenses

$ 563 $ 611

Other current assets

$ 31 $ 259 Total Current Assets $ 10,985 $ 11,257

Current Liabilities

 

 

Accounts Payables

$ 1,469 $ 1,588

Accrued expenses

$ 1,654 $ 1,833

Short-term borrowings

$ 187 $ 108

Current portion of long term debt/Capital lease

$ 200 $ 49

Other current liabilities

$ 331 $ 220 Total Current Liabilities $ 3,841 $ 3,798

Current Ratio

2.860

2.964

The current ratio of Nike represents 3.64% increase from 2011 to 2012, which reveals that the liquidity of the firm has increased to some extent. Current ratio of businesses is calculated by dividing current assets to current liabilities, and it represents how well the company is capable of paying off its current obligations through its current assets ...