Casework - Casework should be posted according to the course schedule in Moodle
ID: 2774861 • Letter: C
Question
Casework - Casework should be posted according to the course schedule in Moodle using the assignment submit link. Use the provided annual report for Nike, Inc. This report and its Consolidated Statements of Income and Consolidated Balance Sheets will serve as your primary resource for completing the casework. Perform a qualitative and quantitative financial ratio analysis using only the years 2014 and 2013 and the following Financial Analysis and Interpretation ratios from the end of each chapter:
• liabilities to owner’s equity (Ch. 1) • working capital (Ch. 4) • current (Ch. 4) • sales to assets (Ch. 6) • inventory turnover (Ch. 7) • number of days’ sales in inventory (Ch. 7) • accounts receivable turnover (Ch. 9) • number of days’ sales in receivables (Ch. 9) • fixed asset turnover (Ch. 10) • quick (Ch. 11)
You must complete a cover page (stating your name and the company) along with a reference page (listing the annual report and any other resources such as websites). There is a half-page minimum per ratio, including the years 2014 and 2013 quantitative analysis plus qualitative analysis. The qualitative analysis should not define the ratio using the text terms; rather, define and describe what the ratio means to your company. This may consist of trends, prior year comparisons, industry/peer comparisons, or notes from Nike’s annual report. The quantitative financial ratio analysis should include the text ratio formula, Nike’s data, and the calculations. Use only the 2014 and 2013 year-end data for ratios requiring averages (not 2012).
http://investors.nike.com/investors/news-events-and-reports/default.aspx?toggle=topBanner
http://trineonline.trine.edu/pluginfile.php/1032084/mod_resource/content/2/nike-2014-form-10K.pdf
Explanation / Answer
source :http://investors.nike.com/files/doc_financials/2014/docs/nike-2014-form-10K.pdf
1) liabilities to owner’s equity
Interpretation: Total debt of company has increased relatively to equity in 2014 as compared to 2013. The company seems to have relied more on debt as source of financing as proportion of debt has increased in capital structure,it suggests more cheap financing for the company but at same time over reliance on debt is not appropriate when looking from valuation perspective.
2)working capital= Current Assets- Current Liabilities
Interpretation: Decrease in working capital suggests that company has not expanded its operations, there seems to belittle investment activity on company's behalf. More or less a constant working capital seems to suggest no remarkable growth in operations.
3) current ratio= Current Assets/Current Liabilities
Interpretation: The current ratio is healthy as its >2, there are enough assets available to meet the short term liabilities. However the ratio has seems to weaken in year on year but its still healthy.
4) Sales to Assets= Total Sales/Total Assets
Interpretation: The ratio is moderately high there are enough dollars being churned out per unit $ of asset investments, a good ratio above suggests company is properly utilizing its total assets to generate revenue,ratio seems to have remain stable in year on year.
5)inventory turnover= CostofGoods Sold/Average Inventory
Interpretation: Company is seemed to have large base of inventory to meet goods demand for production, a low turnover suggests relatively high inventory storage costs,the ratio has remained stable year on year.
6)number of days sales in inventory= 365/inventory turnover
Interpretation: The goods remains in inventory on an average of 89 days which is large enough before they are sold this suggest storage costs and inventory pile up problems. Remained stable.
7)accounts receivable turnover= Sales/Average Receivables
Interpretation: About 1/8=12.5% of sales is being not realized that means 87.5% of sales is converted to cash while remaining is not realized. The sales not realized is not so detrimental and is quite manageable.
8)number of days’ sales in receivables = 365/accounts receivable turnover
Interpretation: The cash is not received till 44.95 days after the goods are being sold, this is a healthy number indicating there is only a short span of time before the revenues are being realized, this has not improved in 2014 but its still a good number of days for realization of revenues.
9) fixed asset turnover = Sales/Total Fixed Assets
Interpretation: Sales generated per unit dollar of fixed asset investment is high and healthy, for every 1$ of investment there are 6.5$ of sales generated indicates a high efficient utilization of fixed assets in generation of revenues.
10) quick ratio = (Current Assets-Inventory)/Current Liabilities
Interpretation: A high liquid assets are available to meet short term liabilities,however ratio has deteriorated a bit but its still health at~2, means an equal amount of liquid assets are available to meet an equal amount of short term liabilities.
2013 2014 Total Liabilities 3,962 +1,210 +1,292 =6464 5,027+1,199+1,544=7770 Total Equity 11,081 10,824 liabilities to owner’s equity = Total Liabilities/ Total Equity =6464/11,081=.5833 =7770/10,824=.718