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Nike inc - Case Study Example

Equity shares of Nike Inc. are publicly traded in the New York Stock Exchange with the ticker symbol. Financial ratio analysis of Nike Inc. can prove to an important tool to measure the financial condition and health of Nike Inc. As of May 31, 1994 and 1995, the current ratios of Nike Inc. were 3.15 and 1.85 respectively. It meant Nike Inc. had a drastic reduction in the current ratio in the financial year 1994-95. This implied for every dollar of current liabilities Nike Inc. had only $1.85 available as current assets. Hence, it was a big question ahead of Nike Inc. to prove their liquidity position. Next if we compare the working capital of Nike Inc., it can be found that it had $ 1,208,444,000 and $ 938,393,000 as working capital as on May 31, 1994 and 1995 respectively. Thus, working capital also showed a huge decline for the company, which was also a big concern regarding the profitability of the company. The gross profit margin for the company remained almost same at 39.2% and 39.8% for the years 1994 and 1995, respectively. Hence, this profitability ratio did not show a much decline for Nike Inc. in the year 1995 relative to the year 1994. The return on common shareholders’ equity showed an increase from around 18% to 20% for the fiscal years 1994 and 1995 respectively. It meant Nike Inc. provided an increase in income of 2 cents for every dollar invested by the shareholders of Nike Inc. Hence, it showed a positive upsurge regarding this profitability ratio. Next if we look at the

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return on assets generated by Nike Inc., it can be found that it was around 13.1% in the year 1994 and 14.5% in the year 1995. Hence, it showed an upsurge with respect to this profitability ratio as well. Thus, with the basic profitability and solvency ratios calculated for Nike Inc., it can be inferred that the company was not in a great position in the year 1995 compared to the preceding year. The basic profitability ratios calculated here were, current ratio, working capital, gross profit margin, return on equity and return on assets for the financial years 1994 and 1995 respectively. With regards to current ratio, Nike Inc. was not at all in a comfortable position in the year 1995. It had a sharp decline in the current ration relative to the preceding year. The decline was by more than 100% as against its previous year. This implied the company was stepping towards insolvency and had fewer current assets available to pay off its current liabilities. This can be a big hurdle for any company for continuing its daily operations and generating cash from its operations. Hence, it posed a problem to maintain the profitability of a leading company like Nike. The inability of Nike to generate cash from its operating activities showed in their significant decline in the working capital, which came down from $ 1,208,444,000 to $ 938,393,000 during the fiscal years 1994 and a995 respectively. It meant Nike’s profitability was in declining phase and it was unable to generate income from its business activities. However, Nike, Inc. was able to maintain its gross profit margin at a constant level. References “About Nike, Inc.”


CASE STUDY Table of Contents Table of Contents 2 Nike, Inc. – A Case Study 3 References 6 Nike, Inc. – A Case Study Nike Inc. is an US based company operating in the consumer goods sector. It is a well known brand all over the world. Nike Inc. is headquartered at Beaverton, Oregon and was founded in 1964, when it was known as Blue Ribbon Sports…
Author : miguelconroy
Nike inc
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