Use the Internet or Strayer databases to research one (1) publicly traded company and review its last annual report. Use an investor’s view to perform financial analysis and discuss various non-financial factors impacting investment decision.
Write a two to three (2-3) page paper in which you:
From an investor’s view, review the last annual report for chosen company. Use financial analysis tools of liquidity, profitability, and solvency to evaluate the company’s performance and reasons for investing or not investing. Include the company’s ranking in the industry, and its major competitors.
From an investor’s views, discuss at least three (3) non-financial factors that suggest investing in this company. These may include environmental responsibility (sustainability), corporate governance, etc. Explain the main reasons why these are important to an investor.
Use at least three (3) quality academic resources in this assignment. Note: Wikipedia and other Websites do not quality as academic resources.
Your assignment must follow these formatting requirements:
Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.
Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.
The specific course learning outcomes associated with this assignment are:
Analyze and interpret financial statements.
Evaluate management control systems and examine their relationship with accounting and planning, including feedback and non-financial performance measurements.
Use technology and information resources to research issues in financial accounting for managers.
Write clearly and concisely about financial accounting using proper writing mechanics.
Financial Analysis of Nike
Nike is a global footwear giant incorporated in 1968 under the laws of the state of Oregon. Nike’s principal business is the “design, development and worldwide marketing and selling of athletic footwear, apparel, equipment, accessories, and services” (Nike Inc., 2015). Nike has a wide scope of activities, and this is likely why it is ranked as the largest seller of athletic footwear and apparel globally (Nike Inc., 2015). Nike has also positioned itself competitively within the global landscape through its widespread adoption and integration of technology in its activities. In fact, Nike indicates that one of the channels through which it sells its apparel is its website, on what it refers to as Direct to Consumer (DTC) operations. On the onset, it thus appears that Nike is a good investment choice. An investor analysis of its latest annual report is presented, and recommendations made.
Financial Analysis
Financial data on a company provides important information about the status of the company. It arises from the accounting process and is presented in the financial statements of the company. Such data provides important insight for assessment of a firm’s plans and performance, and for decision-making (Deari, 2010; Healy & Palepu, 2012 ). The financial information for Nike is discussed below. The data presented includes gross figures as well as ratio analysis data.
Nike’s revenues for the year ended May 31 were $30,601, a $2802 million increase from the previous year. Its gross profit for the same period was $14,607 million. There was also an increase in the gross profit margin. Furthermore, the net income from continuing operations was $3,273 million, which was also an increase. The financial data indicates that for the period presented in the financial report (2011-2016), there has been a sustained year on year increase in the gross revenue, gross profit, gross profit margin, and net income. From this preliminary analysis, it appears that Nike is a good investment option.
A more comprehensive method of financial analysis is through the use of financial ratios. Liquidity analysis provides an assessment of whether a company is capable of meeting its short-term debt obligations, and is performed through liquidity ratios. The most common ratio is the current ratio (current ratio = current assets / current liabilities). It indicates the ability of the company’s assets to pay off current liabilities. A higher ratio is desirable. Nike’s current ratio is 2.5 (Nike Inc., 2015). Solvency analysis is closely related to liquidity analysis. The contrast is that solvency analysis highlights the ability of the firm to attend to its long-term debt obligations. Solvency is determined through solvency ratios, including debt to equity and debt to assets. The debt to equity ratio is derived as the quotient of total debt divided by total equity (Debt to equity = Total debt / Total equity). Unlike the current ratio, here, a lower figure is desired. Nike’s debt to equity ratio for 2015 is 1079/12707 = 0.085. This ratio is very low and thus presents a favorable position of Nike.
Besides solvency and liquidity, other ratios that provide valuable insight into Nike are capital utilization and profitability ratios. The return on equity provides an indication of the net income that is earned on shareholder’s equity. It provides an indication of the profit that a company generates from the money invested by shareholders, and is obtained as the quotient of net income divided by shareholder’s equity. Nike’s ROE for 2015 was 27.8% (Nike Inc., 2015). The return on assets indicates the profit a company generates for every dollar of assets invested (Healy & Palepu, 2012 ). It is a product of the return on sales (net profit margin) and the asset turnover. In its most basic expression, the return on assets is a quotient of the net income divided by assets. Nike’s ROA for 2015 stood at 16.3% an increase from the previous year. Another ratio, the price/earnings (P/E) ratio, indicates the amount investors are willing to pay for every dollar of reported profits. Nike’s P/E ratio for 2015 was 27.5. Based on the financial analysis, Nike is a good investment option. It has very favorable figures on all financial ratios.
Financial data provides critical insight for any investor,
but there are other factors that are equally important, such as environmental
responsibility and social responsibility. In terms of environmental
responsibility, Nike indicates that it complies with all environmental
requirements. Another important issue is competitiveness. Nike acknowledges
that it operates within a competitive environment. However, this competition
appears to be well mitigated considering that Nike is the leading footwear and
apparel seller and also, that it has experienced aa sustained growth in profits
amongst other financial indicators. Finally, based on some factors within the
PESTEL framework for environmental analysis, Nike appears to be doing well. For
instance, when it comes to the technology aspect, which has to do with
innovation and adaptation to advances in technology, Nike is doing rather well.
Nike has taken advantage of advances in information and technology, to develop
its Direct to Consumer channel of marketing (Nike Inc., 2015). These factors are
important to an investor because they affect a company’s operations. These
variables can interfere with a company’s operations and impede its competitive
advantage.
References
Deari, F. (2010). Financial Statements Analysis As A Tool For Decision-Making: Case Of “Nemetali”. Studia Universitatis Babes-Bolyai, 55(1), 66-78.
Healy, P., & Palepu, K. (2012 ). Business Analysis Valuation: Using Financial Statements. Cengage Learning.
Nike Inc. (2015). Annual Report On Form 10-K. Oregon: Nike Inc.