Nike/Adidas/Reebok Company and Industry Analysis




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NIKE/Adidas/Reebok


Company and Industry Analysis
To determine the financial condition or health of a company, at least three types of analysis are performed: an analysis of the company over time; an analysis of the company compared to its major competitors; and, an analysis of the company compared to the industry in which it operates.
For example, in addition to an analysis of the company over time, analysts would compare Coca-Cola and Pepsi-Co directly to each other, as well as each company to the soft drink industry. Analysts would do the same for Dell Computers and Gateway, Lowe’s and Home Depot, Staples and Office Depot, and virtually every company and that company’s major competitor.
In this activity, you will be able to determine if the company’s financial condition has improved or worsened, or remained the same, from one year to the next. Then, you will compare the three companies to determine which company in better financial condition. The companies you will analyze are NIKE, Addidas and Reebok.
To compare companies to the industry in which they operate, financial ratios for the industry are needed. Financial ratios for companies in an industry are aggregated using standard industry codes, “SICs” The SICs for NIKE, Adidas and Reebok are listed below, as is a description of each code. There is more than one SIC for each company because each company manufactures a variety of products—footwear, men’s clothing, women’s clothing, etc.—that fall within different industry codes.
The fact that companies such as NIKE, Adidas, Reebok and many others manufacture and sell a variety of products makes an analysis of their financial statements and comparisons to other companies a difficult task. Standard or average financial ratios and other measures are prepared according to industry; industry categories are in turn based on products manufactured or sold, for example footwear, or clothing. For companies that sell or manufacture products that fall into more than one and sometimes varied industry categories, analyzing and comparing those companies becomes complex, since most companies do not provide financial figures for product lines but for the company as a whole.
For example, although all three companies are similar from a consumer perspective, NIKE and Adidas have a primary SIC of 3021, Rubber & Plastic Footwear Manufacturing, while Reebok has a primary SIC of 3149, Footwear, Except Rubber Manufacturing. All, however, also have in common the following SICs: 2329, Men & Boys Clothing Manufacturing, 2339; Women’s Misses & Juniors Outerwear Manufacturing, and 5139; Footwear Wholesale. (See charts below)
Resources:
The following resources provide industry and company data, such as SICs, to facilitate comparisons of companies:


  • The Department of Commerce Financial Report

  • Robert Morris Associates Annual Statement Studies

  • Annual Statement Studies

  • Standard & Poor’s Industry Surveys

  • Industry Surveys

  • Almanac of Business and Industrial Financial Ratios

  • Industry Norms and Key Business Ratios

  • Value Line Investment Service

In addition, the Money section of www.msn.com provides Industry Ratios. Within the Money section, click on “Stocks,” then “Research” and then “Key Ratios.” Financial ratios and data for the company and the industry in which it operates are presented, as well as for the S&P 500. (The direct link is: http://moneycentral.msn.com/investor/invsub/results/hilite.asp)




Standards Industry Codes (SICs) for NIKE, Adidas and Reebok



Standard Industry Code

Description

3021

Rubber & Plastic Footwear Manufacturing

3149

Footwear, Except Rubber Manufacturing

2329

Men & Boys Clothing Manufacturing

2339

Women’s Misses & Juniors Outerwear Manufacturing

5139

Footwear Wholesale






NIKE

Adidas

Reebok

SIC 1

3021

3021

3149

SIC 2

2329

2339

2329

SIC 3

2339

2329

2339

SIC 4

5139

5139

5139

To view the entire list of SICs, visit the SIC section of the Securities and Exchange Commission’s (SEC) web site: http://www.sec.gov/info/edgar/siccodes.htm


In addition, more information is available on Webster’s Online Business Directory at www.webstersonline.com, or http://www.webstersonline.com/siclist.asp or http://www.webstersonline.com/sic-details.asp#23

PART I – INDIVIDUAL COMPANY ANALYSIS
The objective is to analyze three companies (NIKE/Adidas/Reebok) and determine for each company the year in which the company was in a better financial condition. This will determine the financial trend of the company—whether it has improved or worsened, or remained the same, from one year to the next.
STEP 1:

For each company, calculate the financial ratios for the most current year and the prior year in each category.


For each ratio, award 1 point for the year—current or prior—in which the ratio was better. Total the points awarded in each category—profitability, liquidity, debt and productivity.
A maximum of 15 points can be awarded for a particular year. The maximum per category is:


  • Profitability – 3 points

  • Liquidity – 7 points

  • Debt – 3 points

  • Productivity – 2 points

Complete the short-answer questions that follow each section.



STEP 2:

Copy the total for each category to the Summary table, and calculate the total points awarded for each year.



STEP 3:

Use your calculations to assess each company’s financial position or condition in each year. Write a summary that states the year the company’s financial condition was better and an explanation based on your analysis.


Company Analysis: NIKE



PROFITABILITY

Current Year

Points

Prior Year

Points

Gross Profit Margin













Operating Profit Margin













Net Profit Margin













Total Points – Profitability















Profitability Analysis


  • In which year was the company more profitable?

  • Is the trend in profitability favorable or unfavorable?

  • Is cost of sales increasing or decreasing as a percentage of sales?

  • Is operating expenses or selling, general and administrative expenses increasing or decreasing as a percentage of sales?


Company Analysis: NIKE



LIQUIDITY

Current Year

Points

Prior Year

Points

Current Ratio













Quick Ratio













Cash Ratio













Working Capital













Inventory Turnover (Days)













Accounts Receivable Turnover (Days)













Operating Cycle (Days)













Total Points - Liquidity















Liquidity Analysis


  • In which year was the company more liquid?

  • Is the trend in liquidity favorable or unfavorable?

  • Which is shorter, the inventory turnover or accounts receivable turnover?

  • Is it taking more days or less to sell inventory?

  • Is it taking more days or less to collect accounts receivable?

  • Is the operating cycle getting longer or shorter?

  • Why is the operating cycle is getting longer or shorter?

  • Which is better—the operating cycle or the current, quick and cash ratios?

Company Analysis: NIKE



DEBT POSITION

Current Year

Points

Prior Year

Points

Debt Ratio













Long-term Debt Ratio













TIE













Total Points – Debt Position















Debt Analysis


  • In which year is the company’s debt position better?

  • Is the trend in debt position favorable or unfavorable?

  • In which year is the company’s ability to pay interest better?

  • Does the company have more short-term debt (current liabilities) or more long-term debt? Explain why.

  • Why is the company’s debt ratio and long-term debt ratio is increasing (decreasing)?


Company Analysis: NIKE



ASSET PRODUCTIVITY

Current Year

Points

Prior Year

Points

Net Profit Margin













Total Asset Turnover













DuPont Return on Assets













Total Points - Productivity















Asset Productivity Analysis


  • In which year did the company’s assets generate more sales?

  • Is the trend in total asset turnover favorable or unfavorable?

  • In which year did the company have a greater return on assets?

  • Is the trend in return on assets favorable or unfavorable?

  • Which is more significant in driving the company’s return on assets—profit margin or asset turnover? Explain why.



Company Analysis: NIKE


SUMMARY

Current Year Points

Prior Year Points

Profitability







Liquidity







Debt Position







Asset Productivity







Total Points









Overall Financial Condition Analysis


  • In which year is the company’s financial condition better?

  • Is the company’s overall financial condition improving? Explain why.

  • In which financial areas is the company improving?



Company Analysis: Adidas


PROFITABILITY

Current Year

Points

Prior Year

Points

Gross Profit Margin













Operating Profit Margin













Net Profit Margin













Total Points – Profitability















Profitability Analysis


  • In which year was the company more profitable?

  • Is the trend in profitability favorable or unfavorable?

  • Is cost of sales increasing or decreasing as a percentage of sales?

  • Is operating expenses or selling, general and administrative expenses increasing or decreasing as a percentage of sales?



Company Analysis: Adidas



LIQUIDITY

Current Year

Points

Prior Year

Points

Current Ratio













Quick Ratio













Cash Ratio













Inventory Turnover (Days)













Accounts Receivable Turnover (Days)













Total Points - Liquidity














Liquidity Analysis


  • In which year was the company more liquid?

  • Is the trend in liquidity favorable or unfavorable?

  • Which is shorter, the inventory turnover or accounts receivable turnover?

  • Is it taking more days or less to sell inventory?

  • Is it taking more days or less to collect accounts receivable?

  • Is the operating cycle getting longer or shorter?

  • Why is the operating cycle is getting longer or shorter?

  • Which is better—the operating cycle or the current, quick and cash ratios?



Company Analysis: Adidas



DEBT POSITION

Current Year

Points

Prior Year

Points

Debt Ratio













Long-term Debt Ratio













TIE













Total Points – Debt Position















Debt Analysis


  • In which year is the company’s debt position better?

  • Is the trend in debt position favorable or unfavorable?

  • In which year is the company’s ability to pay interest better?

  • Does the company have more short-term debt (current liabilities) or more long-term debt? Explain why.

  • Why is the company’s debt ratio and long-term debt ratio is increasing (decreasing)?


Company Analysis: Adidas



ASSET PRODUCTIVITY

Current Year

Points

Prior Year

Points

Net Profit Margin













Total Asset Turnover













DuPont Return on Assets













Total Points - Productivity














Asset Productivity Analysis


  • In which year did the company’s assets generate more sales?

  • Is the trend in total asset turnover favorable or unfavorable?

  • In which year did the company have a greater return on assets?

  • Is the trend in return on assets favorable or unfavorable?

  • Which is more significant in driving the company’s return on assets—profit margin or asset turnover? Explain why.



Company Analysis: Adidas


SUMMARY

Current Year Points

Prior Year Points

Profitability







Liquidity







Debt Position







Asset Productivity







Total Points









Overall Financial Condition Analysis


  • In which year is the company’s financial condition better?

  • Is the company’s overall financial condition improving? Explain why.

  • In which financial areas is the company improving?


Company Analysis: Reebok


PROFITABILITY

Current Year

Points

Prior Year

Points

Gross Profit Margin













Operating Profit Margin













Net Profit Margin













Total Points – Profitability















Profitability Analysis


  • In which year was the company more profitable?

  • Is the trend in profitability favorable or unfavorable?

  • Is cost of sales increasing or decreasing as a percentage of sales?

  • Is operating expenses or selling, general and administrative expenses increasing or decreasing as a percentage of sales?


Company Analysis: Reebok



LIQUIDITY

Current Year

Points

Prior Year

Points

Current Ratio













Quick Ratio













Cash Ratio













Working Capital













Inventory Turnover (Days)













Accounts Receivable Turnover (Days)













Operating Cycle (Days)













Total Points - Liquidity















Liquidity Analysis


  • In which year was the company more liquid?

  • Is the trend in liquidity favorable or unfavorable?

  • Which is shorter, the inventory turnover or accounts receivable turnover?

  • Is it taking more days or less to sell inventory?

  • Is it taking more days or less to collect accounts receivable?

  • Is the operating cycle getting longer or shorter?

  • Why is the operating cycle is getting longer or shorter?

  • Which is better—the operating cycle or the current, quick and cash ratios?



Company Analysis: Reebok



DEBT POSITION

Current Year

Points

Prior Year

Points

Debt Ratio













Long-term Debt Ratio













TIE













Total Points – Debt Position















Debt Analysis


  • In which year is the company’s debt position better?

  • Is the trend in debt position favorable or unfavorable?

  • In which year is the company’s ability to pay interest better?

  • Does the company have more short-term debt (current liabilities) or more long-term debt? Explain why.

  • Why is the company’s debt ratio and long-term debt ratio is increasing (decreasing)?


Company Analysis: Reebok



ASSET PRODUCTIVITY

Current Year

Points

Prior Year

Points

Net Profit Margin













Total Asset Turnover













DuPont Return on Assets













Total Points - Productivity















Asset Productivity Analysis


  • In which year did the company’s assets generate more sales?

  • Is the trend in total asset turnover favorable or unfavorable?

  • In which year did the company have a greater return on assets?

  • Is the trend in return on assets favorable or unfavorable?

  • Which is more significant in driving the company’s return on assets—profit margin or asset turnover? Explain why.


Company Analysis: Reebok



SUMMARY

Current Year Points

Prior Year Points

Profitability







Liquidity







Debt Position







Asset Productivity







Total Points









Overall Financial Condition Analysis


  • In which year is the company’s financial condition better?

  • Is the company’s overall financial condition improving? Explain why.

  • In which financial areas is the company improving?



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