I will further elaborate on the financial performance with the help of the following ratio analysis. For the ratio analysis, the figures have been taken from the 2008 and 2009 financial statements.
The current Ratio evaluates the liquidity of the company. It represents a safety net for the creditors. Nike has improved its liquidity over the last year. It now holds $3 for every $1 of its short term debts as compared to $2.7 of last year. In comparison to the relevant industry, it is one of the most liquid companies’ (Bloomberg, 2010). The analysis further shows that Nike holds an excess of the working capital in current assets which should be invested in the marketable securities for generation of further income.
The Quick Ratio is another measure of solvency and measures the liquidity of the company. This ratio removes the inventory and prepaid from the current assets as they are not as liquid as others. Nike has improved its liquidity position in the market with a ratio of 2.4 as compared to 2.1 in 2008. It now holds $2.4 for every dollar of short term obligations to the creditors. The analysis further shows that more than 50% of the assets are help up in the receivables and hence, the company depends on the collections for meeting of the obligations. Compared to the industry, Bloomberg again reflects on the liquidity position of the company as one of the better company’s income (Bloomberg, 2010).
The Debt to Equity ratio indicates the strength of the balance sheet rather than the growth and earnings prospects. Nike has reduced its debt ratio from 6% to 5% in 2009. Even though, the company increased the lending but at the same time, it also increases its equity in the market. Nike has always maintained its strength in the balance sheet because of the less leverage. Nike generated $0.05 in addition to a dollar in equity. Industry comparison shows that the company is least risky but it must add on its debt more so that it can generate