Make a ratio analysis comparison by taking any two companies/firms/financial institutions listed on any Stock Exchange around the world.

The paper investigates the financial performance of Nike Corporation and Adidas AG both of which are multinational apparel and sportswear firms that have been doing business in the industry. The firms have various sorts of items everywhere throughout the world and they are exceptionally popular in the world. (Kapil, 2011).

Complete ratio analysis

Liquidity ratios

  Nike Adidas
Current ratio 2.52 1.40
Quick ratio 1.47 0.71

 

Liquidity ratios show the ability of the organizations to meet their short-term obligations because it measures the firms’ financial health (Kieso et al., 2011. The current ratio and quick ratio of Nike and Adidas differs indicating a variation in their ability to meet short-term obligations. However, both the companies are relatively liquid since their current ratios are greater than one and hence they are able to meet its near-term obligations.

Profitability ratios

  Nike Adidas
Net profit ratio 10.70% 3.75%
ROA 16.29% 4.92%

 

Profitability ratios determine the organizations’ bottom line as well as the returns that they provide for their investors because they show the firms’ overall performance and efficiency (Kieso et al., 2011). The net profit ratio return on assets is very different implying difference in the firms’ profitability. Adidas AG and Nike Corporation are efficient in utilizing their assets in generating revenue. Generally, the firms are profitable enough as they are able to meet their operating expenses as well as other expenses and still be able to realize some earnings from their operations.

Asset management ratios

  Nike Adidas
Inventory turnover 3.99 3.10
Total asset turnover 1.52 1.31

 

Asset management ratios show how well the firms are managing their liabilities or how well the firms are effectively utilizing their assets in generating revenues (Kieso et al., 2011). Although the values of inventory turnover and total asset turnover of Nike Corporation and Adidas AG are different, they are relatively close implying that the two firms are relatively efficient in using their assets to generate revenues. Both of them are using fewer assets in generating more revenue (Kieso et al., 2011). On the other hand, Nike Corporation and Adidas use more inventories in generating less revenue (Spiceland et al., 2011). Generally, Adidas AG and Nike are relatively efficient in their operations because the fluctuations were very minimal.

Financial leverage ratios

  Nike Adidas
Debt to equity ratio 0.08 0.26
Debt ratio 1.70 2.35

 

Debt ratios or financial leverage ratios measure how leveraged the firm is by gauging the firms’ long-term solvency. Debt to equity ratio and debt ratio of the two firms is relatively low indicating a lower use of debts. However, Nike is relatively lowly leveraged that Adidas AG because it uses fewer debts and hence has less business risk (Kieso et al., 2011).

Market value ratios

  Nike Adidas
P/E ratio 27.39 28.63
EPS 1.85 1.72

 

This class of ratios gauges the organizations’ financial status in the wider marketplace. They give the companies’ management an idea of what their investors perceive or think of the companies’ current performance and future prospects (Kapil, 2011). The P/E ratio and EPS are relatively close implying the companies have relatively same profitability. Therefore, Nike Corporation and Adidas AG are making relatively more money for their shareholders (Kieso et al., 2011).

 

Comparison using graphs

Liquidity ratios

It is evident in the graph that Nike has higher current ratio and quick ratio which implies that Nike is more liquid than Adidas. Nike is more able to meet their short-term obligations because they convert their current assets into cash faster than Adidas (Kieso et al., 2011).

Profitability ratios

Nike is more profitable than Adidas AG. This is because they have higher revenues than expenses when compared to Adidas. Nike Corporation is more efficient in utilizing their assets in generating revenue than Adidas and hence provides higher returns for their investors (Kieso et al., 2011).

Asset management ratios

Nike has higher asset management ratios than Adidas which implies that it is more effective in managing their liabilities or effective in utilizing their assets in generating revenues. The higher inventory turnover for Nike implies that they are more effective in converting their inventory into cash or they are using fewer inventories in generating more revenue (Kieso et al., 2011). Generally, Nike Corporation is relatively more efficient in their operations than Adidas AG.

Financial leverage ratios

Nike has lower debt ratios that Adidas implying that it uses fewer debts and more equity. Nike is relatively lowly leveraged than Adidas AG because it uses fewer debts and hence has less business risk (Kieso et al., 2011).

Market value ratios

Nike has relatively higher market value ratios than Adidas. This implies that the investors of Nike perceive or think highly of the companies’ current performance and future prospects (Kapil, 2011). Nike Corporation is making relatively more money for their shareholders tha Adidas AG because of their higher profitability. Nike’s value of their stocks is relatively higher than that of Adidas. In addition, Nike’s investors expect a relatively higher earnings growth from Nike. Nike’s investors are willing to pay more per dollar of earnings which implies that it is a relatively good investment (Kapil, 2011).

Conclusion

Conclusion

The two companies operate in one industry and have almost the same products; however, they have different financial performances. Although, both the firms have almost close financial performance, the best company to invest in is Nike because of the following reasons. Firstly, Nike has lower debt ratios hence has fewer business risks. Nike has low exposures to interest rate risk compared to Adidas. Secondly, Nike has higher profitability and liquidity and hence has enough cash to meet their daily operations (Spiceland et al. 2011). Finally, Nike is more positioned to offer the highest financial rewards because it is more liquid, more profitable and more efficient in their operations than Adidas AG. On the other hand, Nike Corporation has strong brand recognition as well as loyalty. All these offer the company with an opportunity of obtaining higher revenues that they can offer to their investors (Mullin et al 120).

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