ANALYSIS OF FINANCIAL

STATEMENTS NIKE &

PEERS
K shreyansh
Abstract
Jain

(1411279)
This document contains the analysis of financial statements of Nike
and its
peers in the footwear and sports apparel industry (including Anoop
ratio analysis)
BS
(1411146)

Including ratio analysis

Analysis of Statements of Nike Inc.

Nike Inc. is involved primarily in the design and sale of athletic and footwear
apparel. Nike sells its products to retail accounts through its own retail stores and
Internet-based operations. Almost all of Nikes products are manufactured by
independent contractors. Nike is a consumer goods company, and the demand
for its products is affected by changes in design trends and popularity of sports
activities.1
Despite the economic slowdown in the two main geographies - United States and
Europe (which together account for over 60% of Nikes revenues), revenues for
Nike grew steadily at around 10% over FY2015.
In FY 2015, Nikes growth in Net Income (around 21.5%) received a boost due to
a decrease in an effective tax rate by 1.8% owing to favourable resolutions in
certain jurisdictions. Moreover, diluted EPS growth rate was higher than Net
Income growth rate due to a 2% decrease in Wt. Avg. diluted shares outstanding
(due to a share repurchase).
Financial Ratios
Nikes Return on Equity (ROE) has been considerably higher than its peers over
the years FY2012 to FY2015. This is due to a considerably higher Return on
Assets (ROA) although the leverage is low for Nike. We find the reason for such a
high ROA is a very high Net profit margin for Nike compared to its peers and a
relatively high Asset Turnover ratio, as is evident from Tables 1,2 and 3 below.
Table 1: Select financialratios: Nike
NIKE

FY
2012

FY
2014

FY
2015

Description

0.22
0.15
1.51

FY
201
3
0.23
0.15
1.53

ROE
ROA
Leverage

0.25
0.15
1.65

0.28
0.16
1.71

0.10

0.10

0.10

0.11

1.53

1.53

1.54

1.52

ROE = NI/avg equity

ROA= NI/Avg TA
Leverage
Avg
TA/avg equity
Net profit Margin =
NI/Rev
Asset
Turnover
=
Rev/Avg TA

Net
profit
margin
Asset Turnover

Table 2: Select financial ratios: Adidas

ADIDAS

FY
2012

ROE

0.13

ROA

0.06

FY
201
3
0.1
0
0.0

FY
2014

FY
2015

Description

0.14

0.09

ROE = NI/avg equity

0.07

0.04

ROA= NI/Avg TA

1 Source: Nike Inc. Annual Report

(http://investors.nike.com/files/doc_financials/2015/ar/docs/nike-2015-form-10K.pdf)

Analysis of Financial Statements Nike & peers

1

Leverage

2.24

Net
profit
margin
Asset Turnover

0.05
1.29

Table 3: Select financial

5
2.2
0
0.0
4
1.2
8
ratios:

KERING

FY
2012

FY
2013

ROE

0.09

0.09

ROA

0.04

0.04

Leverage

2.12

2.10

Net
profit
margin
Asset
Turnover

0.12

0.11

0.34

0.38

2.16

2.16

0.06

0.03

1.20

1.24

Leverage
=
Avg
TA/avg equity
Net profit Margin =
NI/Rev
Asset Turnover =
Rev/Avg TA

Kering
FY
20
14
0.0
0
0.0
0
2.0
6
0.0
1
0.4
0

FY
2015

Description

0.05

ROE = NI/avg equity

0.02

ROA= NI/Avg TA

2.05

Leverage = Avg TA/avg

equity
Net profit Margin =
NI/Rev
Asset Turnover = Rev/Avg
TA

0.05
0.45

However, the comparison of just ROE is not enough, since these are companies
of varying capital structures. Hence, we calculate another measure, called Return
on Capital Employed (ROCE). By definition, it is the Profit before interest and tax
(EBIT) divided by the Capital Employed. Since there is no single definition of
Capital employed, we need to choose the appropriate denominator here. In this
case we choose average total assets as a representative of capital employed
since these firms have widely different leverage ratios, and hence the total
assets is a better base. As can be seen from Tables 4, 5 and 6 below, the ROCE
for Nike is quite high when compared to its peers, partly due to a higher Asset
Turnover, but also due to a higher EBIT Margins. The reason for such a high EBIT
can be found by line-by-line analysis of the Income statement of each of the
firms. From our analysis, we found that the EBIT margin is higher due to lower
Operating expenses for Nike as a percentage of revenue.
Table 4: Return on Capital Employed, Nike
NIKE
ROCE
EBIT
Margins

FY
2012
0.15

FY
2013
0.15

FY
2014
0.15

FY
2015
0.16

0.10

0.10

0.10

0.11

ROCE = EBIT/Avg.
TA
EBIT Margin =
EBIT / Rev

Table 5: Return on Capital Employed, Adidas

ADIDAS
ROCE

FY
2012
0.06

FY
2013
0.05

FY
2014
0.07

FY 2015
0.04

ROCE

Analysis of Financial Statements Nike & peers

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EBIT
Margins

0.05

0.04

0.06

0.03

EBIT/Avg. TA
EBIT Margin
EBIT / Rev

Table 6: Return on Capital employed, Kering

KERING
ROCE
EBIT
Margins

FY
2012
0.04

FY
2013
0.04

FY 2014
0.00

FY
2015
0.02

0.12

0.11

0.01

0.05

ROCE = EBIT/Avg.
TA
EBIT Margin =
EBIT / Rev

Analysis of Revenue
We now turn to determine if the cause of increase in Nikes revenues price or
quantity. It has certainly NOT been achieved at the expense of the profit margins,
as can be seen from Table 1 that the Net profit margins have been constant for
Nike. We therefore conclude that the cause of increase in revenues is due to
increase in quantity sold.
We proceed to calculate degree of operating leverage.
Degree of operating leverage = (Sales-VC)/ (Sales-VC-FC).
Why is this significant? It gives us the increase (in %) we will obtain in operating
income from a 1% increase in the quantity
of sales.
For Nike, Degree of operating leverage is low at 3.37 (compared to Adidass 9.60
and Kerings 4.05). This means that a 1% increase in sales will give a 3.37%
increase in operating income. This is great for a firm in the consumer goods
industry where products are at a continuous threat of being commoditized. It
shows that EBIT is not too volatile in response to a change in Revenues for Nike.
Inventory Analysis:
On the inventory front, Nike is way ahead of its peers with Inventory Turnover
Ratio of 4 whereas Adidas and Kering have 3 and 2 respectively.
Inventory for Nike is constant as a percentage of total assets (20%). This has
been maintained constant indicating a steady performance by Nike in terms of its
inventory handling.
Table 7: Inventory turnover ratio
Inventory turnover
ratio = COGS / Avg
Inventory
Nike
Adidas

FY 2012

FY
2013

FY 2014

FY 2015

4.44
3.21

4.29
3.07

4.16
2.77

3.99
3.02

Analysis of Financial Statements Nike & peers

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Trend

Kering

1.47

1.89

2.01

1.91

Liquidity analysis
The scenario is same on the liquidity front as well with current and quick ratios
showing higher liquidity for Nike in comparison to peers.
Table 8: Current ratio
Current ratio =
Current assets /
Current liabilities
Nike
Adidas
Kering

FY 2012

FY
2013

FY 2014

FY 2015

3.05
1.46
1.05

3.47
1.57
1.20

2.72
1.45
1.03

2.52
1.68
0.92

Analysis of Financial Statements Nike & peers

4

Trend

Table 9: Quick ratio

Quick ratio = (Cash
+
ST Marketable invs
+ receivables) /
Current liabilities
Nike
Adidas
Kering

FY 2012

FY
2013

FY 2014

FY 2015

2.60
1.26
0.73

3.19
1.40
0.76

2.49
1.28
0.89

2.15
1.41
0.87

Trend

Solvency analysis
Nike and Adidas have low gearing ratios (debt/equity) whereas Kering has a high
ratio.
In fact, Nike has seen an increase in debt levels only recently since it has started
increasing its borrowing, esp from 2012 onwards, when total long term debt was
only $228 million. This value currently stands at $1.08 billion resulting in the
higher D/E ratio which Nike has raised by issuing commercial paper.
Table 10: Gearing
Gearing = Total
Debt / Total Equity
Nike
Adidas
Kering

FY 2012
0.04
0.25
0.41

FY
2013
0.12
0.28
0.40

FY 2014

FY 2015

0.13
0.24
0.45

0.10
0.33
0.52

Trend

Capacity expansion
Among the compared companies, Nike has been spending more on capital
expansion (Property, plant and equipment). The expansion has been rather
steady with a positive spread over all years and has also covered up for the
depreciated assets entirely in a couple of years.
In case of Adidas and Kering, we noticed that expansion has been less steady
negative growth (implying sale of PPE) or no growth in certain years.
Nikes capacity expansion is due to its entry into emerging economies and other
geographies.
Table 11: Capital expansion
Capital
expenditure(=chan
ge in PPE
values)/depreciatio
n ratio
Nike
Adidas
Kering

FY 2012

FY
2013

FY 2014

FY 2015

0.40
0.46
-1.80

1.01
-1.02
-1.64

1.39
0.77
2.22

0.22
-1.18
0.00

Analysis of Financial Statements Nike & peers

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Trend

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