Financial Statements Analysis

Financial Statements Analysis

Companies’ Background Overview

Nike

Nike is an American multinational corporation specializing in designing, developing, manufacturing, marketing, and selling apparel, equipment, footwear accessories, and services (Purpose Nike, n.d). The firm is the global leader in the supply of athletic shoes and clothing accessories, with its revenue clocking to $37.4 billion as of 2020 (Purpose Nike, n.d.). Nike is headquartered in Portland and has a workforce size of 76,700 employees. Bill Bowerman and Phil Knight founded the company, which was initially referred to as “Blue Ribbon Sports”, before it later changed to Nike.

Adidas

Adidas AG is a German multinational corporation specializing in the exclusive design, development, manufacture, and marketing of sports shoes, apparel, and accessories (Adidas, n.d.). The company is ranked the largest sportswear manufacturer in Europe and comes second to Nike globally. The holding company for Adidas comprises Reebok sportswear and holds an 8.3% stake in the German football club Bayern Munchen (Adidas, n.d.). Adolf Dassler founded the firm in his home, later joined by his brother Rudolf. Initially, the company was referred to as “Dassler Brothers Shoe Factory” before it was later changed to Adidas.

Growth

The previous year, Adidas’ revenue declined by 6.96%, attributed to a decline in demand for athletic wear and accessories due to the coronavirus pandemic that disrupted sports events. Similarly, the net income decreased by 15.06. On the brighter side, the company’s five-year annual sales revenue and net income increased by 10.22% and 28%, respectively, indicating an improvement in financial performance in the past half-decade despite the poor performance in 2020 (MSN, n.d).

Nike’s sales revenue increased by 8.8% in the previous year, which was higher than that of the industry. The net income declined by -36.98%, which was higher than that of the sector (-24.93%). The five-year annual average sales revenue increased by 4.1%, while the net income declined by 4.95%, implying Nike’s financial performance declined over the past five years.

Financial health

Solvency ratios facilitate assessing the companies’ financial health: debt to equity, current—quick, leverage, and book value per share ratio. The debt to equity is a liquidity ratio that compares a firm’s total debt against equity. This ratio indicates the percentage of the firm’s financing from creditors and investors. Adidas’ debt to equity ratio was 0.75, implying that 75% of the organization’s assets are financed using long-term debt (MSN, n.d.). On the other hand, Nike’s debt-to-equity ratio was 0.88%, implying that 88% of its assets are financed using debt. Notably, both companies recorded a debt-to-equity ratio below the industry’s (0.68%). Both companies should increase equity funding to maintain good financial health in creating a competitive capital structure. The current ratio evaluates a company’s effectiveness in servicing its short-term obligations. Adidas’ current ratio was 1.39%, indicating its current assets are sufficient to repay all its current liabilities. Adidas performed poorly than the industry since the current sectorial ratio was 1.62. In this case, Nike performed better than Adidas and the industry. Nike’s current ratio was 2.66, implying its current assets are sufficient to pay two and a half times its short-term debt. The leverage ratio refers to the proportion of overall debt to outstanding equity. Adidas’ leverage ratio was 3.29, implying the debt was three times the shareholders’ equity (MSN, n.d.). Nike’s leverage ratio was 3.27, indicating that the company employs more debt than equity funding to finance the business. Notably, the industry’s leverage ratio was 2.44, indicating Nike and Adidas were more leveraged than other companies in the sports sector.

Book Value per Share

The Book Value per Share (BVPS) evaluates the stockholders’ total equity against the number of outstanding shares. This ratio examines whether a stock is over or undervalued. Adidas BVPS was 33.49%, implying its share is overvalued since it is lower than the prevailing market price. Similarly, Nike’s BVPS was 6.76, indicating the share is overvalued. Notably, the sector’s BVPS was 1.04.

Management Effectiveness

Management’s effectiveness analyzes a company’s efficacy in generating profit from its assets. The ratios employed in this analysis include return on equity, return on assets and return on capital. The return on equity ratio is a profitability ratio that evaluates a firm’s ability to generate profit from shareholders’ investments. It determines the profit earned from each dollar of common stock. Adidas’ ROE was 6.89%, implying the firm makes $6.89 for every dollar shareholders invest. On the other hand, Nike’s ROE was 28.27% indicating the firm earned 28.27 cents for every dollar invested (MSN, n.d). In this case, Nike is more effective in generating wealth from shareholders’ seeing that it performed better than the industry (8.88%). The return on assets evaluates a company’s effectiveness in generating profits from the company’s assets. Adidas’ ROA was 9.2%, implying the company generates $9.2 from every dollar invested in the assets. On the other hand, Nike’s ROA was 2.28, suggesting the company produced $2.28 from every dollar invested in the firm (MSN, n.d.).

Profitability

Gross margin ratios evaluate how profitable a business sells merchandise. Adidas’ gross margin was 52%, indicating that its gross profit was 52% of the sales revenue. On the other hand, Nike’s gross margin was 43.42%, indicating its gross profits were 43.43% of the sales revenue. In this case, Adidas exhibited better financial performance than Nike.

References

Dominguez, L. (2020). Nike vs. Adidas. International Relations Journal 2020, (39), 37.

MSN(n.d.). ADIDAS AG https://www.msn.com/en-us/money/stockdetails/analysis/otc-addyy/fi-a26w9c

MSN(n.d.). NIKE, INC. https://www.msn.com/en-us/money/stockdetails/analysis/fi-a1yjxm

Purpose Nike. FY19 NIKE, Inc. Impact Report Executive Summary https://purpose.nike.com/fy19-nir-executive-summary

Adidas (n.d.). Annual Report 2019 https://report.adidas-group.com/2019/en/

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Financial Statements

Conduct research and compare two companies’ financial statements using the process specified below and write a 750-1,000-word report that provides an evaluation of the liquidity, solvency, and profitability for each company, relative to each other and to industry averages.

Financial Statements Analysis

• Choose a pair of two competing companies from the following list: Coca-Cola and PepsiCo, Home Depot and Lowe’s, Walmart and Target, or Nike and Adidas.
• Go to the address: https://www.msn.com/en-us/moneywww.msn.com
• Type in the first company’s stock symbol or name. (Use “symbol lookup.”)
• Under the “Fundamentals” heading, use the Growth, Profitability, Financial Health, Price Ratios, and Management Effectiveness tabs to complete this assignment.
• Enter the second company’s stock symbol or name, and repeat the process.
• Be sure to cite three to five relevant sources in support of your content. Utilize the GCU Library and external sources for your research.

Prepare this assignment according to the guidelines found in the APA Style Guide, located in the Student Success Center. An abstract is not required.

This assignment uses a rubric. Please review the rubric prior to beginning the assignment to become familiar with the expectations for successful completion.

You are required to submit this assignment to LopesWrite. Refer to the LopesWrite Technical Support articles for assistance.